By Olga Kocybik, CPA, US Tax & Banking Committee Chair, AIWC Düsseldorf
NOTE: At the end of this article you will also find direct links for general COVID-19 payment information
I. Introduction
Citizens of the United States and US resident aliens (such individuals also defined by the Internal Revenue Service (IRS) as US Persons will, in this article regardless of citizenship simply be referred to as US parent(s), or US child(ren); and, US federal income tax returns referred to as “tax return(s)”.
By now most, if not all US Persons, including those living outside the US (also referred to as international taxpayers, expatriates, or expats) know about the US stimulus payments, and many have already received their checks.
The stimulus payments are also referred to as economic impact payments, stimulus checks, or recovery rebates. To summarize, economic impact payments are tax credits that will be applied to 2020 tax returns but advanced to taxpayers as a response to the 2020 COVID-19 pandemic based on their filed 2018 or 2019 tax returns. These payments are not taxable and not includable in taxpayers’ gross income.
Expatriates raise a lot of questions regarding the applicability of stimulus payments to their dependent children. This article attempts to address those and the eligibility for stimulus payments for children between 17 and 24 years of age.
Once a dependent US child is 17 years or older at the end of the tax year, the Child Credit (up to $2,000 per child per year) is no longer applicable, and the US parent often does not draw any benefit from claiming the child as their dependent on their tax return. However, the child may continue to depend on their parent(s) financially even if their name does not appear on their parent(s) tax return.
Is such a child an eligible candidate for the receipt of the stimulus check? The answer is no, as long as the child can be classified as a dependent of a US parent(s) even if not claimed as such on their US parent(s') tax return.
II. General eligibility criteria for stimulus payments
The IRS definition of eligible recipients of a stimulus payment sounds straightforward. Per the IRS, US citizens and US resident aliens will receive the economic impact payment of $1,200 ($2,400 if filing jointly); if they are not claimed as a dependent of another taxpayer; they have a US Social Security Number; and, if US Person’s adjusted gross income is no more than the following thresholds based on their filing status:
- $150,000 for married couples filing joint returns
- $112,500 for head of household filers
- $75,000 for all other eligible individuals
In addition, eligible taxpayers will receive an amount equal to $500 for each qualifying child who has not attained age 17 by the end of 2019.
The definition of ineligible taxpayers is broader and with many nuances. The IRS website says that taxpayers do not qualify if any of the following apply:
- those whose income is above the thresholds
- those who can be claimed as a dependent on someone else’s tax return
- those who do not have a social security number
- Non-Resident Aliens
- those who filed Form 1040-NR, Form 1040NR-EZ, Form 1040-PR or Form 1040-SS for 2019
- incarcerated individuals
- deceased individuals
- estates and trusts
III. Tests for dependent and qualifying children
It is necessary to mention that the IRS does not explicitly address situations where children may be reported as dependents on a foreign country‘s tax return. As a result, the below information relates to US children, their US parent(s), and their US parent(s) US tax returns filed with the IRS.
The rules surrounding dependent and “qualifying children” are complex. For example, both “qualifying” and “non-qualifying” children may be viewed as dependents. The criteria for each are slightly different.
While a “qualifying child” who is also an unmarried US citizen/resident is almost always a dependent, a “non-qualifying child” may still be a dependent of a US parent(s) if they meet the “qualifying relative” tests.
START HERE
The sure way to determine your child’s dependent status is to start with establishing whether the child falls under the “qualifying child” criteria (1-4 below). If not, then apply the “qualifying relative” tests (5-8 below).
At last, if neither criteria apply to the child, they would be able to receive the full amount of the stimulus payment for themselves ($1,200). However, if the child meets either the “qualifying child” or “qualifying relative” criteria, and is 17 years or older on December 31, 2019, they would not be eligible for their own stimulus payment for 2019.
The qualifying tests should be revisited for the tax year 2020 to determine whether the child is still classified as a dependent and whether they may claim the rebate for the tax year 2020 (Example 1 below).
Qualifying child
As long as the child is a “qualifying child” and is an unmarried US citizen or a US permanent resident, they are regarded as a dependent. The IRS defines a “qualifying child” as:
- your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half brother, half-sister, or a descendant of any of them (for example, your grandchild, niece, or nephew)
- under age 19 (or a student under 24 who is enrolled full time during any part of 5 calendar months during the year) or any age if permanently disabled
- someone who did not provide more than half of their own support for the year. For those support criteria calculations, refer to “Resources” at the end of the article
- someone who resided with you for more than half a year
Qualifying relative
For a person to be classified as a “qualifying relative,” the IRS requires four tests to be passed. Generally, a “qualifying relative” is someone who:
- cannot be your or someone’s “qualifying child”
- is your child, stepchild, or descendant of them, or another relative
- has a gross income of less than $4,200 in 2019
- depends on you to provide more than half of their total support for the year
The timing of claiming or not claiming dependent children
The IRS will have two determination years: 2019 and 2020. If a child is a dependent in 2019 and not 2020, they may still be eligible to receive the full amount of the stimulus payment for 2020 when, in 2021, they file their own 2020 US tax return.
Payments for children born in 2020
The stimulus payment received by the US parent(s) in 2020 will not include the amount for a child born or adopted in 2020. However, the US parent(s) will be able to claim the stimulus payment for the child on their 2020 US tax return filed in 2021.
IV. Examples - A Dependent or Not?
Example 1.
A child was claimed as a dependent on the US parent’s 2019 tax return and graduated from school in 2020. The child will not receive an advance stimulus payment in 2020 because they were claimed as a dependent on a 2019 tax return.
In addition, the child will not receive any stimulus payment credit in 2021 if they can be claimed as a dependent on a 2020 tax return.
However, if the child cannot be claimed as a dependent for 2020, they may be eligible to claim the $1,200 stimulus payment on their own 2020 tax return filed in 2021, provided other eligibility criteria are met.
Example 2.
A US parent provided $4,000 toward their 18-year-old son’s support for the year. He has a part-time job and provided $6,000 to his own support, which was more than half of his own support for the year. He is not a “qualifying child”. Now let’s look at step two: is the child a “qualifying relative”?
The child would also not be a “qualifying relative” as their income exceeded the $4,200 threshold. As a result, they are not a dependent and, therefore, can claim the full amount of the stimulus payment for themselves. Even if, based on their income, they would not otherwise need to file a tax return, to claim their stimulus payment they will need to file or to go online and simply provide the IRS their payment info (link in below Resources).
Resources:
See Table 5 of Publication 501 (2019), Dependents, Standard Deduction, and Filing information on rules for dependent children, for more information on qualifying children and relatives;
See Worksheet 2 of Publication 501 (2019) to determine the support criteria.
https://www.irs.gov/publications/p501
https://www.irs.gov/publications/p501#en_US_2019_publink1000292527
DIRECT LINKS FOR COVID-19 TAX INFORMATION
- To calculate a taxpayer’s payment amount (Note: Those with a tax status of Married Filing Separately should select “Single”)
Disclaimer: In applying the provisions of this and any other tax article, it is important to understand the impact of applicable tax laws will vary between individual tax filers. Please consult your tax adviser to determine how the tax laws discussed may affect your particular US tax situation.
References:
www.irs.gov/coronavirus/economic-impact-payment-information-center
www.irs.gov/coronavirus/economic-impact-payments
www.irs.gov/pub/irs-utl/how_do_I_calculate_my_eip.pdf
https://www.irs.gov/publications/p501
https://www.irs.gov/publications/p501#en_US_2019_publink1000292527
https://www.law.cornell.edu/uscode/text/26/6428
Special thanks goes to Elaine Terlinden for her review, edit, and invaluable feedback on the contents of this article.
