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The Recovery Rebate Credit - Am I Eligible?

Article Summary

-This article helps define what the Recovery Rebate Credit is, which taxpayers are eligible for the rebate and how to properly claim the credit in your 2021 filing.

-The Recovery Rebate Credit was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and was paid out to most eligible citizens by the Economic Impact Payment in 2020. Taxpayers who did not receive the full amount to which they were entitled can claim it as a refundable credit when filing 2020 taxes in 2021.

-The IRS sent 5 million faulty math error notices regarding recovery rebate credits that did not inform taxpayers that they needed to respond to the notice within 60 days. The IRS said it was correcting the error by issuing supplemental notices with an additional 60 day period to respond.

-Taxpayers should not report the amount of any Economic Impact Payment received as income when filing your 2020 taxes as Economic Impact Statements are non-taxable.

-You cannot apply for or receive a Recovery Rebate Credit until you account for any Economic Impact Payment received.

-If you already received an Economic Impact Payment and the amount of your Recovery Rebate Credit based on your 2020 tax return would be less, you do not need to return any money. The law does not provide for recovery of payments based on 2018/2019 tax returns

Understanding The Recovery Rebate Credit

The CARES Act provided economic relief payments (also known as “Economic Impact Payments” or “stimulus payments”), at $1,200 per eligible adult, based on adjusted gross income, plus $500 for each additional qualifying dependent under 17 years of age. These Economic Impact Payments were set to continue through December 31, 2020.

Eligibility for receiving the payments that were mailed in 2020 was based, in the majority of cases, on individual taxpayers’ 2019 or 2018 tax filings. For those who did not receive their payment or the full amount due, for example, because the income on their taxes was too high and their lower income in 2020 would have qualified them - or because of a change in the number of dependents in 2020 compared to 2019 - taxpayers can claim the amount due as a refundable tax credit on the 2020 Form 1040 or 1040-SR filed in 2021. Both forms have a line for “Recovery Rebate Credit.”

The Recovery Rebate Credit, if received, will either increase the amount of a tax refund or lower the amount of taxes owed. Since it will be treated as a refundable tax credit, that means even if zero taxes are owed, a refund will be issued for the amount owed.

Eligibility for the Recovery Rebate Credit

Individuals who received a $1,200 stimulus payment ($2,400 if married filing jointly) and also received $500 for each qualifying dependent child under 17, likely do not qualify for a Recovery Rebate Credit. Individuals cannot apply for or receive a Recovery Rebate Credit until they account for any Economic Impact Payment received.

To be eligible for the credit individuals must:

  • Have been a U.S. citizen or U.S. resident alien in 2020.
  • Not have been a dependent of another taxpayer for tax year 2020.
  • Have a Social Security number issued before the due date of a 2020 tax return (including extensions).

Once eligible, taxpayers may qualify for a full or partial Recovery Rebate Credit on their 2020 return if any of the following apply:

  • They were eligible for payment but did not receive one.
  • They did not receive the full amount to which they were entitled.
  • An individual’s 2020 income makes them eligible for a rebate (or larger rebate) now.
  • They had a child in 2020 after they received their stimulus payment.

Check Status of an Economic Impact Payment Application

For those who applied for an Economic Impact Payment and still haven't received it, they can use the following resources: Get My Payment application. Visit the IRS Get My Payment Frequently Asked Questions page for more information about the status of payment, including an explanation of the status codes within the application.

Can taxpayers still claim a Recovery Rebate Credit if they already filed their 2020 taxes?

For those who filed their 2020 taxes and failed to claim a Recovery Rebate Credit they can file an Amended Tax Return 1040-X. The IRS will not calculate their RRC if they did not enter an amount on the original 2020 tax return.

What if mistakes are found on a Recovery Rebate Credit request?

The IRS should find and fix the error and send a notice. There could be a delay in processing the affected tax return.

Millan and Company is here to advise clients regarding the Recovery Rebate Credit.

Millan & Company’s comprehensive approach allows our unique clients to confidently navigate the complexities of taxation and documentation as new laws are implemented into the tax code.

We focus on client satisfaction, delivering high-quality services at fair rates. Contact us to learn how we can help you create a strategy that meets your goals.