As the tax season kicks into high gear, many taxpayers still have questions regarding the 2021 Recovery Rebate Credit. To help, the IRS recently provided guidance on many frequently asked questions regarding advance payments (stimulus checks), eligibility, and more. Although these FAQs are meant to aid in preparing your 2021 tax return, please keep in mind that things may still change before the tax filing deadline. It’s always a good decision to consult with a tax professional before submitting your return to ensure you are following the most recent IRS guidelines. You can also visit IRS.gov and check out the “News” section for any new information regarding the Recovery Rebate Tax Credit and other tax changes.
Commonly Asked 2021 Recovery Rebate Credit Questions
What’s The Difference Between the 2020 and 2021 Recovery Rebate Credit?
The 2020 Recovery Rebate Credit included two rounds of advance payments, also known as Economic Impact Payments. The first was issued in 2020 and the other in early 2021. The 2021 Recovery Rebate Credit, however, only consisted of one advance payment (unless you qualified for a plus-up payment) which was paid out between March 2021 and December 2021. Here are the two main differences between the 2020 and 2021 credit payments:
- Different Amounts Due to Dependent Change. The 2020 maximum credit per person is $1,400 and includes all qualified dependents (17 and younger) claimed on your tax return. For the 2021 credit, “qualified dependents” was expanded to include not only children 19 and younger, but also eligible college students, disabled adults, parents, and grandparents. So, an eligible married couple with a college student would receive $3,200 for 2021 compared to $2,800 in 2020, if their income remained consistent.
- Lower Income Thresholds for 2021. Although the credit amount included additional dependents for 2021, the income threshold was reduced. For 2021, single taxpayers with adjusted gross income (AGI) of $80,000 or more are no longer qualified for the credit. Married couples with a combined AGI of $160,000 or more, and Heads of Households with income over $120,000, are also phased out. This resulted in many who received the 2020 tax credit no longer qualifying for the 2021 credit.
Some individuals may have received an additional third Economic Impact Payment (2021 Recovery Rebate Credit advance payment). The IRS sent plus-up payments to those who received a third payment based on their 2019 tax return or Social Security information but later filed a 2020 tax return (processed by December 1, 2021) which resulted in a higher payment due. These plus-up payments were sent separately from previous Economic Impact Payments and 2020 tax refunds. Taxpayers who did not receive the full amount due in 2021 may be eligible to claim the 2021 Recovery Rebate Credit on their 2021 tax return.
Will I Receive a Letter or Notice About the 2021 Tax Credit?
Yes. The IRS mailed Letter 1444-C, Your Third Economic Impact Payment, to those who received the advanced payment. They also sent out separate letters to taxpayers who received plus-up payments. In early 2022, you should also receive IRS Letter 6475, Your 2021 Economic Impact Payment(s) which will confirm the total amount you received for tax year 2021. Keep these letters/notices for your records, as you will need them when you file your 2021 tax return. You can also view these letters/notices by accessing your IRS account online.
I Don’t File a Tax Return. How Do I Claim the 2021 Recovery Rebate Tax Credit?
If you are eligible for the 2021 Recovery Rebate Credit but did not receive the full amount through the advance payment or plus-up payment, you must file a 2021 tax return to claim the credit – even if you are not required to file. If your income is less than $73,000, you can file for free through the IRS Free File Program. Do not include the first and/or second Economic Impact Payments or the 2020 Recovery Rebate Credit on your 2021 return.
I Wasn’t Eligible For The Third Economic Impact Payment. Can I Still Claim The Recovery Rebate Credit?
Maybe. The third payment was sent to taxpayers based on either their 2019 or 2020 tax information. Eligibility for the 2021 credit, however, is based on your 2021 income. If your 2021 income was lower than that used to determine the advance payment, you could be eligible to receive the credit. You may also be eligible if you are no longer a dependent on another taxpayer’s return but were claimed as one for 2019 or 2020. The amount of the credit owed could also increase if you had a child (birth, adoption, or foster) in 2021.
I Was In Jail During 2021. Can I Claim The Credit?
Yes, if you meet all other eligibility criteria and file a tax return. You cannot be denied the 2021 Recovery Rebate Credit strictly based on your incarceration.
Do I Have to Complete the 2021 Recovery Rebate Credit Worksheet?
There is no need to complete the worksheet if you already received the full credit amount as an advance payment (stimulus check). Although it is not required when claiming credit, the worksheet can aid you in determining how much you are eligible to receive.
Can I Still Claim The 2021 Recovery Rebate Credit If I File Late?
Any 2021 tax refund due will include the Recovery Rebate Credit (if eligible). Generally, you must file your return within three years of the original filing deadline to claim that money.
Should I Report My Advance Payment as Income on 2021 My Tax Return?
No. Advance payments of the Recovery Rebate Credit are not considered income and should not be included as income on your federal income tax return.
Can My Recovery Rebate Credit Be Offset to Pay Off Government Debts?
Yes. If you have outstanding debts with a state or federal agency (separate from federal income tax debt), your tax refund can be offset to pay those debts. This includes any amount from your Recovery Rebate Credit included in your refund.
Do I Have To Return The Third Economic Impact Payment If I No Longer Qualify For the Recovery Rebate Credit?
No. Although the income reported on your 2021 tax return may exceed that used to determine your eligibility for the advanced payment, you are not required to return the money.
What Happens If I File Electronically And Make a Mistake in Calculating My Credit Amount?
Don’t panic. The IRS will not reject your return if you made an error in determining your Recovery Rebate Credit amount. If you entered an amount greater than $0 on line 30 and it was incorrect, the IRS will calculate the correct amount and continue processing your return. Do not file an amended return! If a correction is needed, the IRS will send you a notice explaining any changes made. No action is needed if you agree with the changes. If you disagree, call the number listed on the notice.
Taxpayers who do not claim the credit or mistakenly enter $0 for the credit amount, however, will have to file an amended tax return to receive the credit.
To view additional information regarding the 2021 Recovery Rebate Tax Credit, be sure to check out this IRS fact sheet.