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Recovery Rebate Credit

The American Rescue Plan Act of 2021 included a provision that extended the Recovery Rebate Credit to Tax Year 2021. The 2021 credit has the following differences from the 2020 credit:

  • The credit amount is $1,400 for all eligible individuals.
  • As well as the taxpayer and spouse, eligible individuals include any dependent that was claimed on the taxpayer’s federal tax return as long as they have a valid SSN.

Under this legislation, individuals that were eligible for this credit (based on information from their 2020 or 2019 federal return) received the credit in advance as an Economic Impact (Stimulus) Payment (EIP) during 2021. Therefore, only those who did not receive all or part of the EIP that was due to them qualify for the Recovery Rebate Credit on their 2021 federal tax return. This means that since the vast majority of taxpayers received the full amount of the third economic impact payment, most taxpayers will not be eligible to receive this credit on their 2021 federal tax return.

Photos of the 2020 Coronavirus Aid, Relief and Economic Security Act alos known as the CARES ACT. Photos are not of the actual bill but a simulation of the bill.

What is the Recovery Rebate Credit

The recovery rebate credit is a benefit that most individuals received during 2021 in the form of an Economic Impact (Stimulus) Payment. The economic impact payment(s) that an individual received was an advance of the Recovery Rebate Credit. Therefore, any calculated credit is reconciled with the payment(s) that the individual received during 2021.

The amount of this fully refundable credit is:

  • $1,400 for each eligible individual ($2,800 for Married couples). The taxpayer and spouse must have a valid SSN to be eligible for this credit.
  • $1,400 for each dependent claimed on the taxpayer’s federal return. Each dependent must have a valid SSN to be eligible for this credit.

Taxpayers with the following circumstances are eligible to claim this credit on their 2021 federal return:

  • Taxpayers who did not receive any 2021 economic stimulus payment ($2,800 – MFJ or $1,400 for all other filing status’)
  • Taxpayer did not receive a $1,400 payment for all of their eligible dependents
  • The taxpayer’s economic stimulus payment was limited based on their income on their 2019 or 2020 return and their 2021 income is below the income limit

It is important to only claim the Recovery Rebate credit if the taxpayer falls under one of the circumstances listed above. If an incorrect Recovery Rebate credit is claimed the processing of the return will be delayed and thus any refund that is due the taxpayer will also be delayed.

The Recovery Rebate credit begins to be reduced when individual’s AGI reaches the following:

  • $75,000 for single filers (reduced to zero with income over $80,000)
  • $150,000 for married filing joint filers (reduced to zero with income over $160,000)
  • $112,500 for Head of household filers (reduced to zero with income over $120,000)
United States Treasury stimulus payment for Coronavirus CoViD-19 outbreak disease.

How do I claim the credit

The credit is claimed on Form 1040, line 30. The credit is fully refundable and is calculated based on a worksheet on page 59 in the 2021 Form 1040/1040SR instructions.

How do I find how much Economic Impact (Stimulus) Payment I received in 2021

In early 2022, taxpayers will receive IRS Letter 6475. This letter will inform them of the total amount of economic impact payment they received in 2021.

Individuals must use the amount on this letter to reconcile the total EIP they received in 2021 with the calculated Recovery Rebate Credit which is based on the information on their 2021 federal return. If the calculated credit is more than the amount of EIP that they received they will claim the difference as the Recovery Rebate Credit on Form 1040, line 30.

If the individual misplaces or does not receive Letter 6475, they may find how much economic impact payment they received in 2021 by logging into their IRS individual online account.

See the ID.me IRS Help Site for more information on the new IRS authentication process for individuals to access their online account.

Recover any unpaid stimulus funds

If an individual did not receive any economic impact (stimulus) payment (EIP) or did not receive the full amount due to them individuals can receive any unpaid amount by claiming the Recovery Rebate Credit on their 2021 federal return.

Individuals who are eligible to claim the credit on their 2021 return are:

  • Individuals who did not receive any 2021 economic impact (stimulus) payment ($2,800 – MFJ or $1,400 for all other filing status’)
  • Taxpayer did not receive a $1,400 payment for all of their eligible dependents
  • The taxpayer’s economic impact payment was limited based on their income on their 2019 or 2020 return and their 2021 income is below the income phase-out limit

Recovery Rebate vs Stimulus Check

The Recovery Rebate credit is a refundable credit that eligible individuals can claim on their 2021 federal return.  This credit is calculated based on information included on the 2021 federal return.

The Economic Impact (Stimulus) Payment was an advance of the Recovery Rebate credit that was paid out to eligible individuals in 2021. The amount of the stimulus payment was based on either the taxpayer’s 2019 or 2020 federal return information.

Line 30 Recovery Rebate Credit

If the taxpayer can claim the Recovery Rebate Credit it will appear on Form 1040, line 30.

How much is the Recovery Rebate Credit for 2021?

The Recovery Rebate credit is $1,400 for all eligible individuals.

Eligible individuals must have a valid SSN and include the taxpayer, spouse, and dependents that are claimed on the taxpayer’s 2021 federal tax return.

How to Calculate the Recovery Rebate Credit

The Recovery Rebate Credit is calculated based on the taxpayer’s 2021 income, filing status and eligible dependents. To be eligible the taxpayer, spouse and dependents must have a valid Social Security Number.

The credit is $1,400 for each eligible individual.

If the taxpayer received an economic impact (stimulus) payment (EIP) during 2021 this amount must be reconciled with the calculated credit. If the credit is more than the amount of EIP the taxpayer received they will claim a refundable credit on Form 1040, line 30.

If the amount of the EIP they received is more than the calculated credit the taxpayer does not have to pay it back.

If the amount of EIP and the calculated credit are the same, the taxpayer may not claim a credit on Form 1040, line 30. This is because they received the full amount of Recovery Rebate Credit when they received their EIP during 2021.

Mark Castro, CPA

Mark Castro, CPA

Mark has been with CrossLink Professional Tax Solutions (CPTS) since 2008, but has been in the tax industry since 1990. As the government/tax industry liaison for CPTS, Mark has been very active in working with the IRS, States, and other tax industry members to help improve communications, promote standardization, and simplification of eFile systems. Mark has also been active with industry associations as a board member of the National Association of Computerized Processors (NACTP) and the Council of Electronic Revenue Communication Advancement (CERCA) for many years. These two associations work with the IRS and States to help solve key eFile and electronic tax system issues and work to improve the operations of the State and IRS eFile systems.
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Recent Tax Updates