Reporting stimulus money after my son files on his own

Question

In 2021 a lot happened, including my son starting to work for the first time ever. When I filed in 2021 for 2020 taxes, I filed for me, wife, son, and daughter.

I received the 3rd stimulus in April for 4 people, $1,400 each. My son worked that year and earned about 12K.

Now I'm filing his and our taxes (filing his separately from ours). I'm stuck on the question "Did you get a 3rd Stimulus payment? How much?"

I'm inclined to put Yes and 1 for him, and Yes and 3 for me. The problem is I'm afraid my return will get flagged since I received 4 x 1,400, not 3.

My other option would be to put "no" for him, since technically, he didn't get any payment. But that seems kinda fraud-y, as we did get money for him, it's just that HE didn't get it.

What would be the proper response?

Answer 1

The correct answer is you received 4 * $1400, and he didn't receive any. Yes, that will mean that he will get an extra $1400 tax credit, and you will not have to pay any money back, but that is the correct amounts you are entitled to under the law.

Basically, tax year 2020 was more beneficial to you than 2021, since you had one more dependent in 2020. Your Economic Impact Payment #3 was based on 2019 or 2020 tax year, so entitled you to more than than your Recovery Rebate Credit #3, based on your 2021 tax year. The amount you received in EIP is subtracted from your RRC, but the law says that this cannot be reduced below 0, so you don't have to pay any money back even if your EIP > RRC.

On the other hand, for your son, tax year 2021 was more beneficial than 2020, since no one could claim him as a dependent for 2021, so his RRC #3 was greater than his EIP #3. He gets the difference as a tax credit on his 2021 tax return.

The fact that you guys each got maximal benefit from using a different tax year is what's causing you to feel it's weird. But it's normal based on how the law is written.