Third Stimulus Payment and Claiming Dependents

[felicia3513]

My fiancé and I live together with two children. Last year, each of us claimed one child on our 2020 returns. With that being said, we received (2) $2800 payments for two sets of 2 individuals.  We also received two separate child tax monthly payments of $250 each for the 6 months.

For 2021, I have been putting in different tax scenarios into TurboTax. If I claim both kids as dependents, and put that I only received $2800, it's giving me another $1400 for the other (new) dependent I will be claiming vs the 2020 return where I only claimed one child. 

Is that right? Should I put that I received a total of $4,200, even though my fiancé technically received the payment? Or does the amount need to specifically match Letter 6475? That would mean we would put $2800 for his return, even though TurboTax is expecting it to be $1400 for just him. The help text says if you received more than what they expect, you don't have to pay it back?

I want to put in the correct amounts from the letters so it matches up, but it doesn't seem right. Any help appreciated!

[AliciaP1]

If you (or your fiance) claim both children on either of your 2021 tax returns, the other will be responsible for paying back the Advance Child Tax Credit payments they received.  It is important to complete the recovery Rebate Credit and Advance Child Tax Credit sections of your returns accurately and so they specifically match the Letters 6475 and 6419 you should have received.

The cleanest scenario would be to leave the children to be reported in 2021 the same way they were reported in 2020 if at all possible.

[Opus 17]

First, you may be confusing the stimulus and the advance child tax credit.

Let's do the stimulus first.  It's a credit on your tax return, based on the number of dependents, not their identities.  The IRS was required to make early payments which are technically considered estimates.  The stimulus payments don't have to be repaid if you qualify for a smaller amount on your tax return, such as because you don't claim a dependent. 

So, if parent #1 received $2800 for themself and child John.  Parent #2 received $2800 for themself and child Mary.  If parent #2 claims John and Mary as dependents and parent #1 claims no dependents, parent #2 will receive an additional $1400 because their stimulus check was for self+1, and they are claiming self+2 on their tax return.  Parent #1 does not have to repay any stimulus.  On your tax return, you only enter the stimulus you personally received ($2800), not your partner's stimulus.  

Now, the advance child tax credit.  The CTC is based on the number of children you claim on your 2021 tax return only, it is also not tied to their identities.  The advance payments are only an estimate, but in this case you do have to repay the advance payments if your advance payments are more than what you are entitled to on your tax return (unless you are low income and qualify for repayment protection).  

So again, we suppose that parent #1 claimed John and received $1500.  Parent #2 claimed Mary and received $1500.  If parent #2 claims Mary and John, parent #2 will receive $3000 for John and $3000 for Mary, minus the $1500 already received, for a net of $4500.  But Parent #1 must repay the $1500 they got because they will claim no dependent on their tax return.  So your family unit will net out to receive the additional $3000.  However, in the event that parent #1's income is less than $30,000, they won't have to repay the ACTC either and you can keep it.

If you want to extract the most money from the IRS, you will have to test different combinations. Just be sure to only report stimulus amounts when asked about stimulus amounts, and only report ACTC payments when asked about ACTC payments.  And only report what you actually received on your tax return, keep your payments separate from you finance.