What is the Recovery Rebate Credit?
The Recovery Rebate Credit was authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and paid out in advance to most eligible citizens in the form of an Economic Impact Payment in 2020. If you did not receive the full amount to which you were entitled, you can claim it as a refundable credit when you file your 2020 taxes in 2021.
- The Recovery Rebate Credit lets you lower your taxes (or receive a credit) for your full Economic Impact Payment if you didn't receive it in 2020.
- If you're eligible for a credit and don't owe taxes this year, your credit will provide a tax refund.
- The IRS issued more than 5 million faulty math error notices regarding recovery rebate credits that did not inform taxpayers they had to respond to the notice within 60 days.
Understanding the Recovery Rebate Credit
The CARES Act provided economic relief payments, known as Economic Impact Payments or stimulus payments, valued at $1,200 per eligible adult, based on household adjusted gross income (AGI), plus $500 for each additional qualifying dependent under 17 years of age. These payments were set to continue through Dec. 31, 2020.
Eligibility for getting the payments mailed in 2020 was based, in most cases, on your 2019 or 2018 tax filings. If you did not receive your payment or the full amount due, for example, because the income on your taxes was too high and your lower income in 2020 would have qualified you—or because of a change in the number of dependents in 2020 compared to 2019—you could claim the amount due as a refundable tax credit on your 2020 Form 1040 or 1040-SR filed in 2021. Both Form 1040 and Form 1040-SR include a line for "Recovery Rebate Credit."
Do not report the amount of any Economic Impact Payment (stimulus payment) received as income when filing your 2020 taxes. Economic Impact Payments are not taxable.
If you receive a Recovery Rebate Credit, it will either increase the amount of your tax refund or lower the amount of taxes you owe. Since it will be treated as a refundable tax credit, that means even if you owe zero taxes, you will receive a tax refund for the amount you are owed.
Qualifying for a Recovery Rebate Credit
Before claiming a Recovery Rebate Credit, you must first determine whether you are due one. Generally speaking, if you received a $1,200 stimulus payment ($2,400 if married filing jointly) and your family also received $500 for each qualifying dependent child under 17, you likely do not qualify for a Recovery Rebate Credit.
You cannot apply for or receive a Recovery Rebate Credit until you account for any Economic Impact Payment received.
To be eligible for the credit you must:
- Have been a U.S. citizen or U.S. resident alien in 2020.
- Not have been a dependent of another taxpayer for tax year 2020.
- Have a Social Security number issued before the due date of your 2020 tax return (including extensions).
Once eligible, you may qualify for a full or partial Recovery Rebate Credit on your 2020 return if any of the following apply:
- You were eligible for payment but did not receive one.
- You did not receive the full amount to which you were entitled.
- Your 2020 income makes you eligible for a rebate (or larger rebate) now.
- You had a child in 2020 after you received your stimulus payment.
If you already received an Economic Impact Payment and the amount of your Recovery Rebate Credit based on your 2020 tax return would be less, you do not need to return any money. The law does not provide for recovery of payments based on 2018/2019 tax returns.
If you applied for an Economic Impact Payment and still haven't received it, check your status using the Get My Payment application. Visit the IRS Get My Payment Frequently Asked Questions page for more information about the status of your payment, including an explanation of the status you receive from the application.
The IRS issued more than 5 million math error notices to taxpayers regarding claims of a Recovery Rebate Credit but failed to inform recipients that they had just 60 days to respond to the notice. The IRS said it was correcting the error by issuing supplemental notices with an additional 60 day period to respond.
Calculate Your Recovery Rebate Credit
Instructions for determining your Recovery Rebate Credit are included with 2020 Form 1040 and Form 1040-SR. Begin by gathering up your Notice 1444, received from the IRS if you were issued an Economic Impact Payment. Notice 1444 will tell you how much you received.
Next read instructions for Line 30, Form 1040 or Form 1040-SR then fill out the worksheet for Line 30. The worksheet will help you calculate the amount of your Recovery Rebate Credit. Note that the the amount of your Recovery Rebate Credit will be phased out if your AGI for 2020 exceeds $150,000 (married, filing jointly), $112,500 (head of household), or $75,000 (any other filing status).
What is an IRS Math Error Notice?
The IRS uses computers to screen all tax returns. When the computer finds a math error, in favor of or against the taxpayer, the IRS recalculates taxes, assesses interest or penalties and send a letter to the taxpayer detailing the error. Taxpayers have 60 days to respond to the letter or they will be liable for any amount assessed.
Can I still claim a Recovery Rebate Credit if I already filed my 2020 taxes?
If you filed your 2020 taxes and failed to claim a Recovery Rebate Credit you can file an Amended Tax Return 1040-X. The IRS will not calculate your RRC if you did not enter an amount on your original 2020 tax return.
What if I discover I made a mistake on my Recovery Rebate Credit request?
The IRS says "DO NOT file an amended tax return." The IRS will find and fix the error and send you a notice. There could be a delay in processing your tax return.