Why am I subject to the Kiddie Tax and why can't I claim a Recovery Rebate Credit?

[Anonymous]

I believe that I am being subjected to the Kiddie Tax when I shouldn't be. Take note of these facts:

• I am a full-time student under the age of 24. My birthday is 5 September 2001.
• I received $6952 in unemployment compensation in 2020, all from the government. I am reporting my Form 1099-G in my 2020 tax return.
• I received $5886 of student financial aid in 2020. This includes $1213 from a scholarship, $500 from a federal SEOG grant, $3173 from a federal pell grant, and $1000 from the College Access Program. For your information, the College Access Program is a grant administered by the Kentucky Higher Educ.... 
• My earned income is not more than half of my living costs.
• Here are the conditions of my custodial parent: She is single and divorced. She is alive. I live with her. No one else lives in our household. She is able to claim me as a dependent, but she will not do so in 2020 and she has never done so previously. She will not file taxes in 2020 and she did not file taxes in 2019 or 2018. She is unemployed. She is a monthly recipient of Supplemental Security Income (SSI) benefits. This is her only source of income. All of these conditions held true throughout the entirety of the years 2018, 2019, and 2020. All of these conditions still hold true today.
• My conditions: I am employed part-time and will be reporting my Form W-2 in my 2020 tax return. In addition to the money I earn in wages, I am a monthly recipient of SSI benefits. All of these conditions held true in 2019 and 2020. All of these conditions still hold true today.

Technically, I do meet all of the criteria necessary to be subjected to the Kiddie Tax. Therefore, I would be required to provide the name, SS number, and income of my custodial parent. The problem, however, is that my custodial parent is a non-filer and therefore has no filing status. I am asked to classify her filing status as one of the following: Single, Head of Household, or Widower. None of these are applicable to her because, as previously stated, she is a non-filer and therefore has no filing status. All of her income in 2018, 2019, and 2020 came exclusively from Supplemental Security Income benefits, which is exempt from taxation and cannot be reported on a tax return. She does not file taxes because of this.

I tried filling out the information for the Kiddie Tax, and when the Kiddie Tax is factored into my tax return, I have over $400 in federal tax due. I believe this is a mistake, but I'm not sure. I need help figuring out whether or not I should, indeed, be subjected to the Kiddie Tax. I am seeking advice related to this issue on this forum. Also, I never received a stimulus check at all. I am not claimed as a dependent, I was laid off from my part-time job for roughly 2 months in 2020 due to COVID-19 and a lockdown imposed by my state's Governor, and I am a recipient of SSI which, according to the IRS, means I should automatically get the stimulus money. When I try to check my payment status on the IRS website, it says my payment status is not available. I made sure to enter my information correctly. For some reason, I am not being presented with the option to claim a Recovery Rebate Credit (RRC) in my tax return, even though I clearly indicated that I did NOT receive a stimulus. I wonder of the Kiddie Tax has anything to do with this. As previously stated, I am seeking advice related to this issue on this forum. All help is greatly appreciated. I firmly believe that I qualify for the stimulus, that it's a mistake that I never received it, and that I should be able to get an RRC. Keep in mind that this (the RRC) is the main issue. I included the Kiddie Tax in this because I wonder if it has anything to do with me not being able to get an RRC. However, I am more concerned about the RRC than the Kiddie Tax, so please keep that in mind.

[Anonymous]

All help/advice is greatly appreciated.

[KathrynG3]

Based on the circumstances as described, the disconnect is happening because of indicating that you do not provide more than half of your support. This categorizes you as a dependent, which raises the Kiddie tax question and disqualifies you from the Recovery Rebate Credit. Your status in the Get My Payment tool may be affected if you indicated yourself as a dependent on your tax return for 2019.

To check your input in TurboTax and address the dependent question, I recommend returning to the My Info section and clicking the pencil icon by your name.

[Anonymous]

I confirm that, in the My Info section, I indicated that, yes, someone else can claim me as a dependent on their tax return. I also confirm that, to the question "Did you support yourself in 2020?", I responded with "No, I didn't pay for more than half of my living expenses with earned income."
However, I also indicated that, no, this person will not claim me on their 2020 tax return. This is what I am reporting on my 2020 tax return and I did the same in 2019. Technically, my mother can claim me as a dependent, since I live in her apartment and I do not pay for more than half of my living costs using earned income. However, she will not do so and has never done so because her only source of income is SSI which not only makes it unnecessary for her to file taxes, but as far as I know, it even goes so far as to make it impossible for her to file.

Saying that I did not support myself implies that someone else supported me. I wonder if that is a technicality in and of itself. I did not pay for more than half of my living expenses with earned income, but my mother did not do so either. She did not pay for more than half of my living expenses with earned income, and she did not do so for her own living expenses either. All of the essential expenses in our household are paid for with the monthly checks that each of us individually get from SSI. Rent, electricity, auto insurance, groceries, internet, both of our phones, etc. Since she has no taxable income to report, she cannot file a tax return even if she wanted to, so am I perhaps making a mistake when I indicate that I can be claimed as a dependent on someone else's tax return? She can't claim me as a dependent if she doesn't have a tax return, can she?

In my 2019 tax return, I indicated that someone can claim me as a dependent, but that I will not be claimed by anyone as a dependent. I'm doing the same in 2020, though now that I think about all this, I wonder if I am doing so mistakenly. Given all of these facts, can you confirm or deny any of my suspicions?

[KathrynG3]

It is appropriate to include the social security income in your analysis. Even though your mother is providing you shelter and food, it does not necessarily mean that she is providing more than half your support. Dependents are  not eligible for the Rebate Recovery Credit. 

[Anonymous]

Supplemental Security Income (SSI) is not the same thing as Social Security income. According to the IRS, recipients of SSI are not required to report their SSI benefits on their tax returns and, in fact, they cannot report it. Neither myself nor my mother pay for more than half of living expenses with earned income. Taking into account all the facts I have stated thus far, can you help me determine if the following statements are true or false? Normally I would be able to determine this myself, but filing my 2020 tax return has been a very confusing process and I don't think I ever could have been ready for it.

True or false: My mother can claim me as a dependent on her tax return. (She is a non-filer and has no earned income whatsoever.)

As you know, she will not claim me as a dependent even if she can. No one will claim me as a dependent.

[KathrynG3]

True or false cannot be answered without specific numbers which should not be posted to a public forum. 

The bottom line is that determining if a person is financially supporting another person is not solely contingent on whether that individual filed a tax return. Your situation needs to take into account household income, not necessarily taxable income.

You are a student with earned income. That alone puts you firmly in the gray area where the true, honest answer regarding whether you are a dependent is "It depends." While this may be frustrating, the bottom line is that if you insist on identifying as a dependent, you cannot receive the Rebate Recovery Credit. 

It is for you to determine whether it is legitimate to interpret your financial contribution as providing more than 50% of your support. Your decision should count up all the money coming in from all resources to your household.