During the pandemic, the US government sent out several Economic Impact Payments, or stimulus payments. For citizens that did not receive a stimulus payment, or if their payment was less than the full amount, the IRS has created a Recovery Rebate Credit so that the taxpayer can claim the credit on their federal return.
What is the Recovery Rebate Credit?
The Recovery Rebate Credit is the same thing as the stimulus payments during the pandemic, or the Economic Impact Payments – the only difference is when you receive the money. Stimulus payments were paid out during the tax years 2020 and 2021, while the credits are utilized at tax time via your tax return.
If you received payments from the Economic Impact Payments (stimulus payments), then you received advanced payments of the Recovery Rebate Credit – these were issued in 2020 and the beginning of 2021 (through two stimulus payments).
You may have also received a payment sometime between March 2021 and December 2021. This payment was an advance payment of the 2021 Recovery Rebate Credit, and it was the third round of Economic Impact Payments. It also included what the IRS refers to as “plus-up” payments, which were to make up for any shortage of the first two stimulus payments, in some cases.
So, how do you know what you’re eligible to claim on your taxes?
Can I Claim the Recovery Rebate Credit?
The easiest way to determine if you can claim the recovery rebate credit, is to work with a tax professional. At Diversified Tax, we can help you determine what credits you can claim based on your tax information so that you don’t have to figure it out on your own.
If you do need to find this information out on your own, you’ll need to follow a few steps.
First, find out if you received any economic impact payments and if you received the first, second or third round. You need to understand that these payments spanned multiple tax years (2020 and 2021), and the payment that is missing must correspond to the Recovery Rebate Credit within tax year in which it was issued.
If you’re missing the first or second payment, that credit applies to your 2020 taxes. If the third payment missing, claim this credit on your 2021 taxes.
To help you in finding this information so you’re not searching through years of your checking account, you can utilize the IRS online tax payment account and view the tax records page.
You may also have paperwork that you received in the mail regarding the stimulus payments:
- Notice 1444 for the first Economic Impact Payment in 2020
- Notice 1444-B for the second Economic Impact Payment in 2020/2021
- Notice 1444-C for the third Economic Impact Payment in 2021
- Letter 6475 to confirm a total amount of the Economic Impact payment and any
plus-up payment received for 2021
How do I Claim the Recovery Rebate Credit?
If you are missing the third Economic Impact Payment because you didn’t qualify, or if you received less than the full amount, you may be eligible to claim the Recovery Rebate Credit on your 2021 tax return.
To claim this credit, you must file a return – even if you don’t usually file a tax return. This credit is based on your 2021 tax year and will reduce the taxes that you owe for the year or be included in a refund if you’re getting one.
To claim the Recovery Rebate Credit for the 2021 tax year, you’ll need to add the amount of your third Economic Impact payment with any plus-up payments, which can be found in your IRS online account or in the letter 6475 from the IRS. Your tax professional can help you apply for this credit when filing for your taxes. If you are completing your taxes on your own, utilize a tax software that will guide you to apply for this credit.
Remember that for the tax year 2021, only the third Economic Impact Payment is relevant to the Recovery Rebate Credit. The first and second stimulus payments were in reference to the 2020 tax year, and if you need help filing for that tax year you’ll need to take additional steps as outlined by the IRS or contact a tax professional.
How Much is the Recovery Rebate Credit?
Remember that the Recovery Rebate Credit, and the Economic Impact Payments, are the same thing – just paid out at different times (the credit when you file your tax return, and the payment throughout the year 2021).
Eligible citizens in 2021 received payments that were generally $1,400 per person. A four-person family for example, would have likely received a stimulus payment in 2021 of $5,600. The IRS also paid out “plus-up” payments for citizens that had an initial stimulus round that was less than the typical amount.
The best way to determine what your Recovery Rebate Credit will be, is to find out the exact amount of your third Economic Impact Payment, in addition to any potential plus-up amount – and then put this information in your tax software or give it to your tax professional. This information is available via letter 6475 and online. Working with a tax professional will save you time and effort in completing complicated tax processes.
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