Recovery Rebate Credit and the Third Stimulus Payment: Many taxpayers experienced the Recovery Rebate Credit (RRC) for the first time when filing their 2020 tax return this year. Next year, we’ll have a Recovery Rebate Credit again for the 2021 tax return. Since the credit this time is tied to the 3rd stimulus payment, which had slightly different criteria than the other two, there are some differences. Those differences are generally good.
Here is what you need to know:
- The 3rd stimulus payment is not taxable income, but it will go on the 2021 tax return. A calculation can be done to make sure you received the right amount. If you received more based on your 2020 tax return, than your 2021 indicates you should have, you will not have to pay back the “excess,” as long as you filed a legitimate tax return.
- Your 3rd stimulus payment was typically based on your 2020 tax return. If you would have received more based on your 2021 tax return, you will get that difference as the RRC. If you didn’t receive any 3rd stimulus and you should have based on your 2021 tax return, you’ll receive it as the RRC.
- How much? For most families the total received (between 3rd stimulus and the 2021 RRC) should be $1400 per qualified person. If a qualified person is added to the family (usually a child) as a dependent and the taxpayer (and spouse if Married Filing Jointly (MFJ)) didn’t receive a 3rd stimulus for that child, then the funds will be received as RRC.
- Phasing Out? The RRC starts to phase out (be reduced over an income range to zero) at $150,000 Adjusted Gross Income (AGI) when filing MFJ, $112,500 when filing as head-of-household, and $75,000 for any other filing status. So, if your AGI was higher than the start of the phase out, based on your 2020 return, but lower for 2021, you can expect to get some RRC.
- Do you share claiming a child? Parents, or others, who alternate who claims a dependent on their tax return may encounter a situation where one received the 3rd stimulus payment and the other receives the Recovery Rebate Credit for claiming the dependent on their tax return. This can be legitimate.
Find answers to your questions: There are more details on this credit at IRS.gov. You could look for answers or your particular situation there. If you are more comfortable getting answers from a professional, please Contact Us.