Read the long answer below. The short answer is, for the advance tax payments, your girlfriend may be able to enroll her children later this year, and she will need to file a separate tax return in her own name for 2021 starting next January. You should not claim your girlfriend or children as dependents for 2021.
For the 2020 tax return and stimulus payments, your girlfriend probably would’ve received $4900 if she had filed in her name, whereas you received $2000 for claiming them on your return. You will need to file an amended 2020 return to remove the children and the girlfriend, then your girlfriend could file an original return in her name to claim the rebates.
==========
A child who lives in your home but is not your biological child is not a “qualifying child” dependent in the tax code. They are a “qualifying relative“ dependent, or a “other“ dependent and they qualify for a $500 dependent credit but not the $2000 child tax credit. For 2021, a “qualifying relative“ or “other“ dependent does not qualify for the advance child tax credit or the enhanced $3000 child tax credit.
You will never be able to receive the advance payment for these children, and you will not receive the enhanced child tax credit if you claim them as dependents on your 2021 tax return.
For 2021, your girlfriend will want to file a tax return in her own name even if she has no income. If she files in her own name and claims her three children as dependents, she would qualify for a $3000 tax credit for each dependent and probably a $1400 stimulus payment for each dependent plus herself. Then you would file your 2021 tax return with no dependents.
The next question is whether your girlfriend could enroll to start getting the advanced tax credit payments early. The IRS has said that they will create a website by the end of the summer where parents who are not already getting the advance payments can enroll. But that website is not ready yet. The advance payments don’t change the amount of the tax credit, only when it is paid. If your girlfriend is not able to enroll, or if she enrolls late and only gets part of the advance payments, she would get the remainder of the amount as a tax refund when she files her tax return.
Going back to 2020, it was a mistake for you to claim your girlfriend and her children as dependents on your 2020 tax return. This is because of the way the coronavirus stimulus payments worked.
In the past before COVID-19, it was perfectly reasonable for you to claim your girlfriend and her children as dependents. This is because, even though you would only get a $500 credit for “other“ dependent, your girlfriend would get no credits if she did not earn income from working.
However, for 2020, if your girlfriend filed in her own name with her children as dependents, even though she did not work, she would be eligible for $1800 of round 1 and round 2 stimulus payment for herself and $1100 round 1 and round 2 payment for each child. Meanwhile, if you had left your girlfriend and children off of your tax return, you would have lost $2000, which is much less than your girlfriend would have gotten by claiming the stimulus payments.
For 2020, you will probably want to file an amended return in your name to remove your girlfriend and all the children as dependents. You will have to repay the $2000 tax credits that you received. Then, your girlfriend can file a new 2020 tax return in her own name even if she had no income. She would claim her children as dependents and she would qualify for, I think, $4900 in economic recovery rebates. Because you have already filed a 2020 tax return and claimed of the girlfriend and her children as dependents, she would have to file her original return by mail. Because the IRS is so backlogged, it may be quite a while before she actually sees that money.
