During 2020, the federal government sent eligible taxpayers two Economic Impact Payments, more commonly known as “stimulus checks.” The money was meant to help people struggling during the economic downturn caused by the COVID-19 pandemic.
The maximum amount available for the first payment was $1,200 for single filers or $2,400 for those who are married filing jointly. In addition, there was a $500 payment for each qualifying child in a household. The maximum second payment was $600 for individuals or $1,200 for those filing jointly, plus an additional $600 for each qualifying child.
However, not everyone received the full amounts of these payments, and that means you may be eligible for the Recovery Rebate Tax Credit. Here’s what you need to know:
Why Didn’t I Get Economic Impact Payments?
Many people didn’t receive their full Economic Impact Payments because the IRS used tax returns from 2018 and 2019 to determine eligibility for the payments. So, some people with higher reported incomes from their past tax returns were not eligible for the full payment.
The Economic Impact Payments began phasing out at $150,000 for people married and filing a joint return, $112,500 for those filing as head of household, and $75,000 for eligible individuals filing as a single or as married filing separately.
If your income exceeded those limits on your 2018 or 2019 tax returns, then you may not have gotten the full payment—or any of it.
What is the Recovery Rebate Tax Credit?
Remember, because the IRS used tax returns from prior years to determine eligibility for the payments, it couldn’t take into account someone’s current situation in 2020, at the time when stimulus checks went out.
You may have had a level of income in 2018 and 2019 that would make you ineligible for some or all of the stimulus checks. But, if your income in 2020 was lower, perhaps due to the pandemic, that means you should have received payments from the government. Also, if you gave birth to or adopted an eligible child in 2020, then you may not have received the additional $500 and $600 payments for qualifying children.
That’s where the Recovery Rebate Tax Credit comes into play.
This credit allows you to claim the missing amount of your Economic Impact Payment as a tax credit when you file your taxes. This credit is refundable, meaning that not only can it reduce the taxes you owe, but it can increase your refund if you’re owed one.
Very simply, the IRS used the information it had to determine how much money you would receive from the two rounds of stimulus payments. The Recovery Rebate Tax Credit is their way of going back and fixing any errors that occurred once they have your 2020 tax returns. So, if you didn’t get the amounts you should have during 2020, you can still receive them through the tax credit, just a little later than you would probably have liked.
Other Factors In Claiming The Recovery Rebate Tax Credit
Not everyone who didn’t receive the full amounts of each round of Economic Impact Payments is eligible for the Recovery Rebate Tax Credit.
For instance, if your income from 2018 and 2019 kept you from receiving all or some of the payments, and it didn’t change (or increased) in 2020, then you can’t claim the credit on your taxes. You’ve already received the amount the government believes you should have.
Note: If your income did increase in 2020, don’t worry about paying back any of your Economic Impact Payments. This only goes one way: the IRS is trying to make sure everyone who should have received the money does. They’re not worried about getting it back from people who had a good 2020.
Dependent Status: If someone claimed you as a dependent on their 2018 or 2019 taxes, then you may not have received the payments, as dependents are ineligible. But, if you weren’t claimed as a dependent on anyone’s 2020 taxes, then you may be eligible to receive the Recovery Rebate Tax Credit.
Social Security Number: The same goes for those who didn’t have a Social Security number valid for employment in 2018 or 2019, but did receive one before the due date of their 2020 taxes. If you fall into this category, you may also be eligible to use the Recovery Rebate Tax Credit.
The Recovery Rebate Tax Credit is just one in a multitude of tax strategies you can use to reduce what you owe. If you want to learn more and talk to dedicated tax pros about your situation, contact AG FinTax today!