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How to Claim the Recovery Rebate Credit on Your 2021 Tax Return

How to Claim the Recovery Rebate Credit on Your 2021 Tax Return
Ines Zemelman, EA
03 March 2022

What is the Recovery Rebate Credit?

In the simplest of terms, it is money in your pocket. In more nuanced terms, the Recovery Rebate Credit is a tax credit against your 2020 income tax. Generally, this credit will increase the amount of your tax refund or decrease the amount of the tax you owe.

The Recovery Rebate Credit was paid in three rounds of advance payments during 2020 and early 2021 (this is what was known as ‘stimulus payments', in effect, advanced payments of the Recovery Rebate Credit. They are officially referred to as the first, second and third Economic Impact Payments (EIP1, EIP2 and EIP3).

You received the full amounts of all Economic Impact Payments if:

  • Your first Economic Impact Payment was $1,200 ($2,400 if married filing jointly for 2020) plus $500 for each qualifying child you had in 2020
  • Your second Economic Impact Payment was $600 ($1,200 if married filing jointly for 2020) plus $600 for each qualifying child you had in 2020

  • Your third Economic Impact Payment was $1,400 ($2,800 if married filing jointly) plus $1,400 for each qualifying dependent

Who can claim the Recovery Rebate Credit?

Eligible individuals who did not receive the full amounts of their Economic Impact Payments (read: stimulus payments) may claim the Recovery Rebate Credit on their Form 1040.

All of the below must apply:

  • U.S. citizen or U.S. resident alien during the applicable tax year

  • Cannot be claimed as a dependent of another taxpayer for the tax year

  • Have a Social Security number valid for employment that is issued before the due date of your tax return (including extensions).

Tax return filing required

There is no more non-filer tool. Even if you are not normally required to file a tax return, if you did not receive any of the Economic Impact Payments, you must file Form 1040 or Form 1040-SR to claim the Recovery Rebate Credit.

Taxpayers residing in American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands, and the Northern Mariana Islands

If you reside in a U.S. territory, don't complete the Recovery Rebate Credit Worksheet and don't enter an amount on line 30 of Form 1040 or Form 1040-SR. In general, the tax authorities in American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands, and the Northern Mariana Islands will provide the Recovery Rebate Credit to eligible residents. Territory residents should direct questions about Economic Impact Payments or the 2020 Recovery Rebate Credit to the tax authorities in the territories where they reside.

How does the recovery rebate work in coordination with previously issued Economic Impact Payments (EIP1 & EIP2)

If eligible, you can claim the Recovery Rebate Credit when you file your 2020 tax return (Form 1040 or Form 1040-SR). 

Your Recovery Rebate Credit amount will depend on your filing status. The amounts will be phased out if your adjusted gross income for 2020 exceeds $150,000 if you are filing MFJ (Married filing jointly) or filing as a qualifying widow or widower, $112,500 if you are filing as head of household (HOH), or $75,000 if you are using any other filing status.

If your family composition has changed  (you got married, got new children) and you are eligible for the higher amount of Recovery Rebate Credit than the EIP amount sent to you, you will receive an additional Recovery Rebate Credit based on your new family composition. See the table below for what to provide your tax preparer.

If you already received Economic Impact Payment based on your income in 2018 or 2019 year but your adjusted gross income in 2020 exceeds the eligibility level shown above, you are not required to pay back the payments previously received.

What if I haven't received my third Economic Impact Payment (EIP3) or got less than the full amount?

If you didn't qualify for a third Economic Impact Payment or got less than the full amount, you may be eligible to claim the 2021 Recovery Rebate Credit when you file your 2021 tax return.

By law, the IRS cannot issue Economic Impact Payments beyond December 31, 2021. If your 2020 return is not fully processed in time to issue your payment by the legislative deadline of December 31, 2021, you may be eligible to claim the 2021 Recovery Rebate Credit.

You must file a return to claim the credit, even if you don't usually file a tax return. The credit is based on your 2021 tax year information, so any third Economic Impact Payments you received will reduce the amount of the credit you're eligible for. Your 2021 Recovery Rebate Credit will reduce any tax you owe for 2021 or be included in your tax refund.

How do I find the amounts of my Economic Impact Payments?

You should have received IRS Notice 1444 for the first Economic Impact Payment, Notice 1444-B for the second Economic Impact Payment and Notice 1444-C for the third Economic Impact Payment.

Through March 2022, the IRS will send Letter 6475, Your 2021 Economic Impact Payment(s), to confirm the total amount of the third Economic Impact Payment and any plus-up payments you received for tax year 2021. If you received joint payments with your spouse, the letter shows the total amount of your half of the payment. Each spouse may receive their letter at different times. 

If you can’t find them - that’s ok. Check your bank statements - it is important you provide your tax preparer with the correct information to ensure that you receive every penny you are eligible for. Please see the table below.

How to claim the credit

Tax filing is always a complex endeavor. Taking into account how to properly file tax returns to incorporate received, partially received, or issued, but not received economic impact payments (EIP 1, EIP2) is even harder. The IRS has many FAQs - but our team at TFX has issued the below guidelines to make sure you get the money you deserve, taking the IRS guidance into account, along with practical guidance from practitioners.

Issue

How to resolve

1. You’ve filed 2019 and/or 2018, expected an economic impact payment (EIP 1 or EIP2), but you have not received it.

1. Check the GetMyPayment page to verify if the payments were issued.

2. If the check was not issued, you were likely not eligible, tracing is not necessary. If you are eligible based off of 2020 income, your tax preparer will properly reconcile this on your return to avail of the recovery rebate credit.

2. You’ve received the payments, but you don’t remember how much.

Go check your bank statements.

It is in your best interest to report the exact amounts received. By failing to provide exact information, you only create issues for yourself.

3. You did not file 2019, 2018 - and you did not use the Non-filer tool (now discontinued) to request economic impact payments

If you had a filing requirement in either year, you should file those returns to get caught up on your back taxes.

As far as the EIP payments, eligibility for the Recovery Rebate Credit will be based solely on your 2020 income.

 

You must file a 2020 tax return in order to claim it, even if you would not have to file a tax return otherwise.

4. You were previously a dependent on your parents' tax return, and your parents received EIP payments for you as a dependent.

Even if you were claimed as a dependent on the prior year parents' return, that was the parent's stimulus payment, which does not affect the TP own 2020 recovery rebate credit. File tax return for 2020 to avail of the stimulus payments. Many college-aged kids are eligible for hefty payouts.

5. You got married in 2020

If you were married in 2020, report to your tax preparer the combined amount of stimulus payments received by yourself & your spouse.

 

If either spouse did not file in the past, you may also be eligible to claim the EIP on your 2020 tax return via the recovery rebate credit.

6. You plan to file as Single, HOH (head of household), MFS (married filing separately), or as a Qualifying Widow in 2020 after filing MFJ (Married filing jointly) in 2019.

Report to your tax preparer the amount received only for yourself (do not include amounts for your spouse’s EIP payment)

If you also received EIP payments for dependents:
 

• If the same dependents are included on your 2020 return include the EIP amount received for the dependents.

 

• If the other spouse will claim the dependents, then report only the filer own share of the EIP1 and EIP2.

7. You file jointly with an NRA spouse

The IRS has lifted prior restrictions on recovery credits for mixed-status families for filing jointly.

 

1. The couple filing jointly is eligible for EIP2 of $600 for the US spouse and $600 for each dependent. No need to file separately.

 

2. The recent $900 billion coronavirus legislation applied retroactively to the CARES Act payments as well. That means the US spouse who was denied the first $1,200 check may be eligible for EIP1 as well retroactively.

8. You would like to engage TFX for the payment tracing process

You only need to start the tracing process if you suspect fraudulent activity (i.e., your check could be stolen and cashed by somebody else). The cost of TFX help for preparing form 3911 is $300. Note - you may initiate payment tracing yourself (information in our Stimulus FAQ).

Ines Zemelman, EA
Founder of TFX