The U.S. government passed a relief package in 2020 designed to help Americans get through the economic downturn caused by the COVID-19 pandemic. It included stimulus checks for taxpayers in spring 2020 and again at the beginning of 2021. Millions of eligible Americans never received their checks or did not receive the full amount, though, and that’s because of confusion about the program or mistakes made by the Internal Revenue Service (IRS) or Treasury Department.
The Recovery Rebate Tax Credit allows these taxpayers to receive the funds they are owed when they submit their 2020 tax returns. This guide will walk you through what the Recovery Rebate Tax Credit is, who is eligible for it, and four steps for claiming it this year.
What Is the Recovery Rebate Tax Credit?
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) included the Recovery Rebate Tax Credit to help taxpayers lessen their tax burden. The credit was paid in the form of Economic Impact Payments (stimulus checks) in 2020 and 2021. The stimulus checks sent out to most Americans were essentially a kind of advance payment of the tax credit.
Certain taxpayers can claim the Recovery Rebate Credit on their 2020 tax return if they did not receive the full amounts of both impact payments. You may be able to get that difference back in the form of a tax refund or reduced tax bill if the total of the two checks is less than the recovery rebate amount.
Eligibility Requirements for the Recovery Rebate Tax Credit
Anyone who was eligible to receive the Economic Impact Payments would also be eligible to receive the tax credit. Taxpayers do not need to complete the credit on their tax returns for the tax year 2020 if they received the full amount of both the first and second payments.
Taxpayers with an adjusted gross income (AGI) up to $75,000 for individuals and $150,000 for joint filers were eligible to receive the full stimulus payment. The check was reduced by $5 for every $100 above these thresholds if income was higher than these amounts. Single taxpayers with income over $99,000 and joint filers over $198,000 were not eligible to receive the first payment. The amount phases out completely for the second stimulus payment at $87,000 AGI for single filers and $174,000 AGI for married couples.
Did You Qualify for the Economic Impact Payments in Full?
Other Eligibility Requirements for the Tax Credit
3 Steps to Claim the Credit on Your 2020 Tax Return
1. Confirm Eligibility
Your first step is making sure you are eligible for the credit, per the above requirements. The Recovery Rebate Credit worksheet helps taxpayers figure out if they are eligible. The worksheet offers a series of questions, including whether you can be claimed as a dependent by someone else, if you were a member of the U.S. Armed Forces in the applicable tax year, the amount of your Economic Impact Payment, and others. Walking through each step helps you understand if you are eligible for the credit and then what your credit will be, discussed more below.
2. Calculate the Credit
3. Complete Form 1040 or Form 1040-SR
The credit needs to be claimed on individual income tax returns using Form 1040 or Form 1040-SR. Once you know your credit amount, the Recovery Rebate Credit is reported on Line 30 on Form 1040 and Form 1040-SR.
Remember that mistakes do happen, and these matters can become complicated quickly. It is always a good idea to talk to a tax professional about your situation before filing your tax return, especially if you are uncertain about your eligibility.
Contact the Tax Experts at Silver Tax Group
Eligibility for any tax rebate program can be tricky, but the team at Silver Tax Group is here to help. We will take a look at your finances to identify all the tax credits and deductions you qualify for, walk you through the process of completing and filing your tax return for 2020, as well as provide tax services such as accounting, tax consulting, audit defense, emergency tax services, and tax debt resolution.
Reach out to Silver Tax Group to speak to a tax expert about the Economic Stimulus Payments and the Recovery Rebate Tax Credit today.