Recent Tax Updates

2020 Federal Recovery Rebate Credit

January 26, 2021


During 2020 the CARES Act and the 2021 Consolidated Appropriations Act made available economic impact (stimulus) payments (EIP) for all taxpayers who had a valid Social Security Number and were not a dependent on another’s return (with the exception for dependent children under 17). The first payments went out in 2020 and the second payments went out in early 2021.

These two economic impact payments were an advance payment of the recovery rebate credit which is part of the 2020 federal 1040 as new line 30. Therefore any calculated credit must be reconciled with the payments the taxpayer received.  

It is important to note that since the vast majority of taxpayers received the full amount of both economic impact payments this credit will be calculated to zero on their 2020 federal return.

This refundable credit is for those individuals who did not receive their full amount of their economic impact payments. This covers the following:

  • Taxpayer and (if applicable) their spouse did not receive the first and/or second economic impact payment
  • Either or both of the two economic impact payments were limited because their 2018 or 2019 income was greater than the income limit based on their filing status
  • Taxpayer did not receive either of their payments for all of their eligible children

Facts about the Recovery Rebate Credit:

  • The maximum credit amount that may be claimed is:
    • 1st Economic impact payment which was $1,200 ($2,400 if MFJ) plus $500 for each dependent child under 17 the taxpayer had in 2020
      Plus
    • 2nd Economic impact payment which was $600 ($1,200 if MFJ) plus $600 for each dependent child under 17 the taxpayer had in 2020
  • Individuals (including eligible children) must have a Social Security Number that is valid for employment
  • The following individuals are NOT eligible for this credit
    • Individuals who are 17, 18, 19-24 students who are claimed as a dependent on their parent's federal return
    • Other individuals who are claimed on another’s federal return
  • Phase out range for credit is:
    • Single filers - $75,000 (reduced to zero when income reaches $99,000)
    • Married filing joint filers - $150,000 (reduced to zero when income reaches $198,000)
    • Head of Household filers - $112,500 (reduced to zero when income reaches $146,000)
  • Credit is based on taxpayer’s 2020 income, filing status and eligible children
  • Credit is reconciled with the amount of economic impact payment received in 2020

For married households where only one of the spouses has an SSN the following applies:

  • Spouse with SSN qualifies to claim the credit related to the $1,200 first economic impact payment
  • Spouse with SSN should have received the $600 second economic impact payment, if not they can claim the credit
  • Any qualifying children that are part of the household are eligible for the $500 credit related to the first economic stimulus payment
  • Any qualifying children that are part of the household should have received the $600 second economic impact payment, if not they are eligible for the credit.

The calculation (which includes the reconciliation with the economic impact payment received during 2020 and in January 2021) of the credit is detailed on a worksheet in the Form 1040 instructions on page 59 and the result of the calculation appears on Form 1040/1040SR, line 30.

For more information see the following: