By Mark Castro, CPA
Updated January 6, 2022
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:
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.
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:
Taxpayers with the following circumstances are eligible to claim this credit on their 2021 federal return:
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:
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.
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:
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.
If the taxpayer can claim the Recovery Rebate Credit it will appear on Form 1040, line 30.
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.
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.