What's the Recovery Rebate Credit?
If you didn't get a stimulus check, or you didn't get the full amount, you may be able to claim the recovery rebate credit on your 2020 tax return to make up the difference.
There's a new tax credit showing up on the Form 1040 this year: The Recovery Rebate Credit. If you didn't get a stimulus check – or you only got a partial check – then you certainly want to make sure you check out the credit before you file your 2020 tax return.
The recovery rebate tax credit and stimulus checks are joined at the hip. Both the first ($1,200) and second ($600) stimulus checks were simply advance payments of the credit. So, if the combined total of your two stimulus checks (i.e., advance payments) is less than the recovery rebate credit amount, you may be able to get the difference back on your 2020 tax return in the form of a larger tax refund or a lower tax bill. If your stimulus checks exceeded the amount of the credit, you don't have to repay the difference. Either way, you win!
This helps eligible Americans who either didn't receive a stimulus check or didn't get the full amount. And, in some cases, even a person who received both a $1,200 first-round stimulus check and a $600 second-round stimulus payment can claim a recovery rebate credit that boosts their refund or reduces the tax they owe. So, even if you're not required to file a 2020 tax return, make sure you at least check to see if you qualify for a recovery rebate credit. If you do, go ahead and file just to claim the credit and get a refund.
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Eligibility for the Recovery Rebate Credit
The eligibility rules for the recovery rebate credit are basically the same as they were for the first- and second-round stimulus checks. The big difference is that eligibility for the stimulus checks was typically based on information found on your 2019 tax return (or your 2018 return for first-round checks), while eligibility for the recovery rebate credit is based on information from your 2020 return. So, you could qualify for a stimulus check but not for the credit – and vice versa.
You're generally eligible to claim the recovery rebate credit if, in 2020, you:
- Were a U.S. citizen or U.S. resident alien;
- Can't be claimed as a dependent on another person's tax return; and
- Have a Social Security number valid for employment that's issued before the due date of your 2020 tax return (including extensions).
A person who died in 2020 can still claim the recovery rebate credit on his or her final tax return prepared by a surviving spouse or representative if the requirements listed above are satisfied.
How to Calculate the Recovery Rebate Credit
Similar to the eligibility rules, calculation of the recovery rebate credit is generally the same as the calculation of stimulus checks, except that they're based on information from different sources. The first stimulus checks were based on information from either your 2018 or 2019 tax return, whichever was most recently filed when the IRS began processing your return. If you didn't file a return for either of those two years, you could send the IRS the necessary information through an online portal. If you received benefits from the Social Security Administration (SSA), Railroad Retirement Board, or Department of Veterans Affairs (VA), the IRS got the information it needed from those other government agencies. Second-round stimulus checks were based on either your 2019 return, information previously obtained through the IRS's non-filers online portal, or information received from another government agency. However, the amount of your recovery rebate credit is based entirely on information found on your 2020 tax return.
As with the stimulus checks, calculating the amount of your recovery rebate credit starts with a "base" amount. For most people, the base amount is $1,800 – that's the combined total of the first stimulus check base amount ($1,200) and the second stimulus check base amount ($600). For married couples filing a joint 2020 tax return, the base amount is $3,600 (i.e., twice the general base amount).
Then you add on $1,100 for each child age 16 or younger claimed as a dependent on your 2020 return. The $1,100 amount represents the combined total of the $500-per-child added on to first-round stimulus checks and the $600-per-child tacked on for second-round payments.
After adding up the base amount and any additional amount for your children, you then need to determine if your recovery rebate credit is reduced because of your income. Your credit will be reduced – possibly to zero – if you file as a single taxpayer and have an adjusted gross income (AGI) above $75,000 on your 2020 tax return. If you file a joint return with your spouse, your credit will start to shrink if your 2020 AGI is over $150,000. For people who claim the head-of-household filing status, the tax credit is reduced if your AGI tops $112,500. For every $20 you're over the applicable threshold, your recovery rebate credit is reduced by $1.
Finally, after the credit is reduced (if necessary), you need to subtract the total first- and second-round stimulus check payments you received from the credit amount. The IRS should have sent you a notice after it sent you a stimulus check – Notice 1444 for first-round payments and Notice 1444-B after second-round payments. You can find the proper amount to subtract on these notices.
You report the final amount on Line 30 of your 2020 federal income tax return (Form 1040 or Form 1040-SR). The recovery rebate credit is a "refundable" credit, which means you'll get tax refund if the credit is larger than the tax that you would otherwise have to pay. ("Non-refundable" credits will only take your tax bill down to zero – they won't trigger a refund even if they're more than the amount you owe.)
Here's an example of how the calculation works:
Andrew and Becky filed a 2019 joint tax return in March 2020 (before any first-round stimulus checks were sent). They reported an adjusted gross income of $160,000 on that return. They also have one child, who is five years old. Since Andrew was furloughed from his job for part of 2020, their 2020 AGI was only $120,000. Because their 2019 AGI was above the $150,000 phase-out threshold for joint filers, both of their stimulus checks were reduced by $500. Their first-round stimulus check was reduced from $2,900 ($2,400 base amount + $500 for their child) to $2,400, while their second-round check was reduced from $1,800 ($1,200 base amount + $600 for their child) to $1,300.
Since their 2020 AGI is below the phase-out threshold for joint filers, their recover rebate credit isn't reduced. As a result, after subtracting the amount of their first and second stimulus payments, the recovery rebate credit they report on Line 30 of their 2020 tax return is equal to $1,000.
There's a page-long worksheet in the instructions for Form 1040 that you can use to calculate the amount of your credit.
Who Will Actually Get a Recovery Rebate Credit?
Most Americans already received the full amount of the recovery rebate credit as stimulus check payments. For those people, subtracting the stimulus money they previously received will reduce their recovery rebate credit to zero.
However, certain groups of people could very well end up with a positive credit amount, which will result in a lower 2020 tax bill or larger tax refund. For example, assuming you're eligible, you may be able to claim a recovery rebate credit if:
- Your AGI was above the applicable phase-out threshold on your 2019 tax return (or 2018 return for people who didn't file a 2019 return before the IRS processed their first stimulus check), but it's lower on your 2020 tax return;
- You had a child in 2020;
- You share custody of your child, your ex-spouse claimed the child as a dependent for the 2019 tax year, and you claim the child as a dependent for 2020;
- You got married in 2020 (especially if there's a wide gap between each spouse's income);
- You could be claimed as a dependent on someone's 2019 tax return, but not on anyone's 2020 return;
- You receive Social Security or veterans benefits, didn't file a 2018 or 2019 tax return, and care for a dependent child, but the IRS didn't get information about the child from the SSA or VA;
- You're married and didn't get a first-round stimulus payment because both spouses don't have a Social Security number (the law was retroactively changed to allow payments if one spouse has a Social Security number);
- The IRS sent you a stimulus check that was less than what you were entitled to receive; or
- The IRS didn't send you the first and/or the second stimulus check at all.
These are just a few of the more common reasons why you might be able to claim a recovery rebate credit. There will be other situations that result in a positive credit amount. That's why it's important that you run the numbers when you file your own 2020 tax return. If you are entitled to a refund, file your return electronically and sign up to have your refund directly deposited into your bank account to get your money the fastest.
(NOTE: If you reside in a U.S. territory, don't enter an amount on Line 30 of Form 1040 or Form 1040-SR. In general, the tax authorities in American Samoa, Guam, Puerto Rico, the U.S. Virgin Islands, and the Northern Mariana Islands will provide the recovery rebate credit to eligible residents.)
Garnishment of the Recovery Rebate Credit
As it stands right now, your recovery rebate credit is subject to offset or garnishment if you owe back taxes, child support arrears, or certain other debts. Unlike stimulus checks, there are no special exemptions from offset and garnishment for the credit. Congress could change the law later, and the IRS could provide some relief, too. But, again, the government, banks, creditors and debt collectors may be able to take part of any refund you get on your 2020 tax return – even if the refund is solely based on the recovery rebate credit. For more on the situation, see Stimulus Check Warning: IRS Can Take Your Recovery Rebate Credit for Child Support or Other Debts Owed.