The pandemic has affected many families across the United States, leaving income levels low and bills piling up. In an attempt to ease the financial burden on Americans, the Federal government passed stimulus checks and subsequently launched the Recovery Rebate Credit.
Stimulus payments have been a lifeline for many Americans during COVID-19, but many were unable to receive the full payment amount due to life changes, income levels, or other determining reasons. The introduction of a Recovery Rebate Credit is now a way to help solve this issue for millions of Americans, so they are able to top up the amounts missing from the original stimulus check when they file their tax return.
The Recovery Rebate Credit is not another stimulus check, but it does take into consideration the payments received from stimulus checks. As part of the Coronavirus Aid, Relief, and Economic Security Act that was signed in March 2020, the IRS passed a tax return credit for individuals who did not receive stimulus checks.
The Recovery Rebate Credit is for 2020, but some individuals did not receive the stimulus checks until 2021, so the credit is still in effect for tax returns filed for year-end 2020 and 2021.
If you qualified for the stimulus checks based on your latest filed return, usually 2018 or 2019, and did not receive payments, you may now qualify for the credit.
The credit is based on information such as adjusted gross income level, on the 2020 return. You are entitled to receive a credit of up to $1,800 per qualifying adult and $500 per qualifying dependent based on your income levels and the payments received. The credit begins to phase out at $75,000 for single taxpayers, $112,500 for head-of-household filers, and $150,000 for married-filing-joint taxpayers.
To claim this credit, you need to fill out the Recovery Rebate Credit worksheet on the individual tax return and show the total amount of stimulus checks received. Stimulus check payments from December 31, 2020, or before are used to calculate the credit for 2020, and payments January 1, 2021, or after are used to calculate the 2021 credit.
The IRS software will then calculate the credit amount based on prior payments and income levels. If it is determined that you qualify for some or all of the Recovery Rebate Credit, the amount of the credit will offset the tax liability. A bonus feature of this credit is that if you have no tax liability, and you are entitled to receive the credit in the form of a refund.
The Recovery Rebate Credit is separate from the stimulus check payments, however, the credit is calculated based on the total amount of stimulus checks received during the year. If you received all the stimulus checks throughout the year, you are not eligible to claim the Recovery Rebate Credit.
The Recovery Rebate Credit and the stimulus checks are related but very different in the avenue they are received. The stimulus check is received directly without any additional forms needing to be filed, while the Recovery Rebate Credit requires a certain credit worksheet to be completed and filed on the individual tax return.
The Recovery Rebate Credit can be a beneficial credit for Americans who did not receive the stimulus check payments. Further information and how to file the appropriate forms can be found on the IRS website. However, employing an accounting professional, like Amberstone Consulting, might be in your best interest to ensure forms are filed accurately and timely.
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