Recovery Rebate Credit allowed in this scenario?

[NGH]

My wife and I, who file jointly, received a 3rd stimulus payment of $4200 in early 2021. $1400 for each of us, plus another $1400 for our teenage daughter, who in 2020, was a dependent. (My understanding is that payment amounts were based upon info in 2020 tax returns.) In 2021, however, our daughter made too much money to qualify as our dependent any longer. In this situation, is our daughter eligible for the Recovery Rebate Credit on her own 2021 tax return? Even though her PARENTS already received $1400 on her behalf? TurboTax says she is due the $1400 but I wanted to confirm.

Thanks in advance.

[xmasbaby0]

The 3rd EIP is based on 2021 income and 2021 information.   They sent out those checks last year based on 2020 information in order to send them out fast, but the credit was an advance based on 2021.   If you received it last year you do not have to pay it back, but the recovery rebate credit on a 2021 tax return is based solely on 2021 circumstances and 2021 income.

You say your "teenage" daughter made too much money in 2021 for you to claim her as a dependent, but you did not mention her age or whether she was a full time student in 2021.   If she was a full-time student under the age of 24 at the end of 2021, you can still claim her and she is not eligible to get the 3rd EIP, no matter how much she made.    In that circumstance she must say on her own return that she can be claimed as someone else's dependent.

If she was not a student, over the age of 23 and had more than $4300 of income in 2021 (not counting Social Security) then she can get the $1400 on her own return.  Congress left a loophole in the law that allows it.

[KrisD15]

Yes

It will seem as if the payment is made twice in regard to your daughter, but that is the way the law was written. 

[Hal_Al · Accepted solution]

Q. In this situation, is our daughter eligible for the Recovery Rebate Credit on her own 2021 tax return?

A.  Yes. And you do not have to repay the $1400 that your received.  

But, as the other reply indicated, are you sure, she is still  not your dependent? "Made too much money" is not always  a dependent disqualification.  

There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.

A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:

1. He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
2. He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
3. He lived with the parent (including temporary absences such as away at school) for more than half the year

So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on him self.

The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.

The IRS has a worksheet that can be used to help with the support calculation. See: http://apps.irs.gov/app/vita/content/globalmedia/teacher/worksheet_for_determining_support_4012.pdf

See full dependent rules at: https://turbotax.intuit.com/tax-tools/tax-tips/Family/Rules-for-Claiming-a-Dependent-on-Your-Tax-Ret...

[NGH]

Thanks for the replies, everyone. My daughter will be happy to hear that she gets the rebate. 🙂

I could have worded the part about her not being a dependent better. TurboxTax (and I, based on everything I've seen online) already determined that she was not a dependent based on the fact that she's 19 (20 next month), is NOT a student, AND makes too much money to be a Qualifying Relative.  

I was actually hoping she WAS still a dependent since she still lives with us and we provide more than half of her support. But no dice.