Many Americans may be eligible for the Recovery Rebate Credit commonly referred to as the COVID stimulus payment. The credit is for the 2020 tax year even though the last payments came in 2021 for many recipients. As Tax Day approaches, you may be wondering if you need to include your stimulus payments on your tax returns. Here's what you need to know.
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What is the Recovery Rebate Credit?
The Recovery Rebate Credit is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law in March of 2020. The initial stimulus payment provided up to $1,200 per qualifying adult and up to $500 per qualifying dependent. Most of these payments went out to recipients in mid-2020.
The Consolidated Appropriations Act, 2021 (CAA) was signed into law on December 27, 2020 and is also part of the 2020 tax credit even though the Economic Impact Payments from the Consolidated Appropriations Act weren’t sent out until 2021. This second stimulus payment distributed up to $600 per qualified recipient.
The Recovery Rebate Credit is actually a tax year 2020 tax credit. The government sent payments beginning in April of 2020 and a second round beginning in late December of 2020 and into 2021.
- These were called Economic Impact Payments (also called stimulus payments) and were sent out as an advance payment of the 2020 tax credit.
- The government sent out an amount thought to be what you would be eligible for based mostly on your prior year tax return or your eligibility for certain benefits such as Social Security.
- The goal was to get money into the hands of taxpayers as fast as possible without having to wait for them to file their 2020 tax returns.
If you did not receive the credit or not enough of the credit through the stimulus payments, the only way to claim the proper amount is on your 2020 tax return. You must file a 2020 tax return to claim any credit that you have not already received, even if you otherwise are not required to file a 2020 tax return.
The good news is, if you received too much of the credit, you are not required to pay it back even if you file a 2020 tax return.
Who is eligible for the Recovery Rebate Credit?
Qualifying for the initial advance payments was based on the information that the government had at the time of distributing the payments. This could have been from your 2019 tax return or your 2018 tax return if you had not already filed a 2019 return by the time the money was issued. If you are attempting to claim part or all of the credit on your 2020 tax return, the credit will be based on your 2020 tax information.
In order to qualify for any of the credit on your 2020 tax return, you:
- Must be a U.S. citizen or U.S. resident alien in 2020
- Cannot have been a dependent of another taxpayer in 2020
- Must have a Social Security number that is valid for employment before the 2020 tax return due date
This includes someone who was born or died in 2020.
In some rare cases, a married couple filing a joint return may qualify for a full credit even if only one spouse has a valid Social Security number. On the other hand, nonresident aliens, estates, and trusts don't qualify for the credit.
After meeting the qualification requirements above, the taxpayer's adjusted gross income (AGI) must fall within the limits to receive the credit based on their situation. Other eligible taxpayers may include those who:
- Got married in 2020: If both spouses were previously eligible, you're still eligible. The tax credit will be based on your new filing status for 2020. Check to see if your new combined income and the higher AGI limit for the married filing jointly status could qualify you for a tax credit on your tax return.
- Had a child in 2020: A child born before the end of 2020 would increase your potential tax credit amount as long as they're a qualifying child.
- Were no longer claimed as a dependent in 2020: If you weren't claimed as a dependent in 2020, you might be eligible for the tax credit. Check the eligibility criteria to see if you qualify. Then, calculate the amount of the credit using tax software, such as TurboTax, or the 2020 tax forms.
- Received veterans’ benefits: Veterans receiving veterans’ benefits that meet all other eligibility requirements should qualify for the tax credit.
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How do I claim the credit?
If you didn't receive the full credit amount as an economic impact payment, claiming the tax credit is relatively easy. TurboTax can help you claim the credit by asking you questions about your tax situation and the economic impact payments you may have received. That information is used to fill out the correct tax forms and claim any credit that you are eligible for on your tax return.
If you're completing your tax return on your own, the credit can be claimed on line 30 of Form 1040 or Form 1040-SR. Instructions for completing this line are included in Form 1040's instructions. In particular, look for the Recovery Rebate Credit Worksheet - Line 30 to calculate your potential credit amount.
How do I calculate the amount of my credit?
The amount of the credit is based on your:
- Filing status
- Number of qualifying children
- Amounts of your economic impact payments previously received
- Adjusted gross income
If you're eligible for the full credit, you may receive up to the following amounts.
The first economic impact payment, or up to:
- $2,400 if you’re married, filing jointly, or
- $1,200 for any other filing status, and
- $500 for each qualifying child under age 17 at the end of 2020
The second economic impact payment, or up to:
- $1,200 if you’re married, filing jointly, or
- $600 for any other filing status, and
- $600 per eligible qualifying child under age 17 at the end of 2020
If you have already received Economic Impact Payments for the full amounts that you're eligible for based on your 2020 tax return, you don't qualify for any additional credit. However, if you received more than you are qualified to receive based on your 2020 tax returns, you do not have to pay back the excess amount.
If you received less than you are eligible for based on your 2020 situation, you can calculate the additional amount of credit to be included on your 2020 tax return.
The credit amount on your tax return begins with the maximum that you are eligible for in 2020. This amount is then reduced by 5% of the amount that your AGI exceeds these levels:
- $75,000 for single or married filing separately
- $112,500 for head of household
- $150,000 for married filing jointly or qualifying widower
Finally, further reduce the potential credit by the amount of the Economic Impact Payments you received in 2020 and/or 2021. If the result is zero or a negative amount, you don't qualify for any additional credit on your 2020 tax return. If your result is a positive amount, then you are eligible for a Recovery Rebate Credit provide you meet all of requirements.
An example Recovery Rebate Credit
Alex and Samantha each filed as single on their 2019 tax returns. They got married in January 2020 and had a child named Ethan in November 2020. Alex’s 2019 adjusted gross income was $100,000 and Samantha’s was $25,000. Neither had qualifying children in 2019.
Alex ‘s income in 2019 kept him from receiving any of the economic impact payments. Samantha received the full amount for both the $1,200 and $600 stimulus payments for a total of $1,800 total.
Alex and Samantha file their 2020 tax return as married filing jointly claiming Ethan as their child and have a combined AGI of $125,000. Assuming that all three meet all of the requirements for the credit, their maximum Recovery Rebate Credit is $4,700.
- This is made up of $2,900 ($1,200 for Alex + $1,200 for Samantha+ $500 for Ethan) for the first stimulus payment and $1,800 ($600 for each of them) for the second stimulus payment.
- Their $4,700 maximum credit is reduced by the $1,800 Economic Impact Payments that Alex received. They are able to claim a Recovery Rebate Credit of $2,900 on their 2020 tax returns.
TurboTax has you covered with up-to-date information on stimulus checks and your taxes. Our COVID-19 Tax Center and Stimulus Check resources have the latest information on changes to taxes, stimulus check eligibility, tax breaks and more so you can feel confident in your taxes, no matter what situation you’re in.