Recovery Rebate Credit – Do You Qualify?
Contributed by: Dan Krivitsky – Staff Accountant
Many taxpayers have received stimulus checks over the last year. However, not everyone received the stimulus payments they qualified for due to the pandemic. As a result, the IRS is allowing individuals that did not receive their stimulus payments to claim them in the form of a credit on their 2020 tax return. Additionally, an individual who also did not receive the full amount of the stimulus payment they are entitled to can also use this credit to reconcile the difference.
Details of the Recovery Rebate Credit
Generally, anyone who cannot be claimed as a dependent on another person’s 2020 return, has a valid social security number, is a U.S. citizen or U.S. resident alien, and did not receive the full amount of economic impact payments (both the first one and second one) can claim this credit.
The economic impact payments were treated as advanced tax credits, so if an individual did not receive the amount they are entitled to, they can claim the difference as a credit on their 2020 return. The first and second stimulus payments were based on an individual’s 2018 or 2019 tax return. This credit is used for individuals who should have received larger stimulus checks based on their 2020 return.
Some examples of individuals who would use this worksheet are individuals who filed as dependent in 2019 but are filing independent in 2020, individuals who made less money in 2020 than their previous year’s return, or individuals who had a baby during 2020.
Calculating The Total Credit Amount You May Be Entitled To
To calculate the amount of the credit you are entitled to, you can use the Recovery Rebate Credit Worksheet, located on page 59 of the instructions for the Form 1040. This worksheet allows you to subtract any economic impact payments you may have already received and add back the amounts you should have received.
Finally, if the payments you received were more than you should have received based on the 2020 tax return, that amount does not have to be given back, but the credit on the tax return will be 0. You must file either a Form 1040 or Form 1040-SR to claim this credit, even if you are not normally required to file a tax return.
For more information, contact Leone, McDonnell & Roberts to speak with one of our financial advisors.