What is Recovery Rebate Credit and How to Claim It in 2022

Recovery Rebate Credit

In this article, you will get to know, what a recovery report credit is. We would also tell you what are the eligibility criteria for the same and how to claim it. 

The IRS has disbursed the third set of stimulus payments (also called EIPs or Economic Impact Payments) to the eligible taxpayers in the country, for the period March to December 2021. If you think you satisfied the qualification criteria for the said payment but are yet to receive it, or if you think you have received less than what you were eligible for, you can claim it easily now. You can do it through the route named the recovery rebate credit while filing your tax return for the year 2021.

Recovery Rebate Credit – Definition

The recovery rebate credit is nothing but a refundable tax credit. You can claim it along with your tax return for 2021 if you have not yet received your third stimulus payment or have received an incorrect amount.

Please note that the third stimulus payment is actually an advance payment on the 2021 tax credit. As the IRS could not access your 2021 tax details while disbursing the advance payments, it had to rely on the most recent information available for you (most likely from your previous return). From that year’s income, dependent number and other information, they may have determined the amount to send to you.

Also Read: Child Tax Credit What It Is and How to Claim It in 2022

Who all are Eligible to Claim the Recovery Rebate Credit?

As per IRS reports, most people eligible for the third round of payments and other relevant additional payments have already got their stimulus payments as well. However, a few situations may have arisen where some of them are yet to get it or have got the wrong amount. Such situations may arise if:

  • You are adding a new dependent in 2021 (e.g., a new child is born).
  • Your marital status got changed in 2021.
  • You did not possess a Social Security Number earlier but have received the same before the 2021 tax deadline.
  • Your AGI (Adjusted Gross Income) from the year that was used by the IRS to determine the third stimulus amount was over the qualifying threshold for a stimulus payment. However, your AGI in 2021 is within the threshold now.

What is the Procedure to Claim the Recovery Rebate Credit?

You should first compare the third stimulus amount you received against the amount you were eligible for, as per your 2021 tax information. From this, you will get to know the difference, if any. If you can’t figure out the amount received, please check the following details with the IRS-

  • Your online IRS account
  • You may request an IRS transcript.
  • You may check the details with the IRS review Notice 1444-C that is sent to you after the disbursal of the third payment). You can also check the IRS Letter 6475 sent to you in early 2022). These notices are sent to each taxpayer that received a stimulus payment.

After going through the details, if you think you meet the eligibility criteria for the recovery rebate credit, you can file an online claim on Form 1040 on your 2021 tax return. You will find a worksheet on page 59 of the instructions attached to the form. It will help you determine the precise amount to claim. Also, different software are available to help you while claiming the credit you are eligible for.

Please note that before submitting the information to the IRS, you should carefully review all the details. Any mathematical and calculation errors can only delay your refund. If you have any doubts regarding your eligibility or amount to claim against the recovery rebate credit, you can get in touch with a qualified tax professional. You may also install a quality accounting software that covers the complexities related to the recovery rebate credit.

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What are the income criteria to qualify for a stimulus payment in 2021?

To qualify, you should meet the below-mentioned income criteria-
 
·         If you are a single filer- your AGI (Adjusted Gross Income) should not exceed $75,000, if you want to avail the full stimulus payment of $1,400. The amount starts reducing after this and fully phases out at $80,000.
·         If you are a married couple and are filing jointly- your AGI should not exceed $150,000, if you want to be eligible for a full $2,800 payment. The amount starts reducing after this and fully phases out at $160,000.
·         If you are the Head of a household – your AGI should not exceed $112,500 if you want to be eligible for a full $1,400 payment. The amount starts reducing after this and fully phases out at $120,000.
 
Irrespective of your IRS filing status, the stimulus payment should include up to $1,400 for each and every qualifying dependent you may have.

Are stimulus checks considered a taxable income?

No. this is called a refundable tax credit only. However, if you have received it, you will need to report the same on your 2021 return.

Did every taxpayer qualify for a stimulus payment in 2021?

No. the following taxpayers did not qualify for a stimulus payment in 2021-
·         Those without valid identification numbers- to avail of a stimulus payment, taxpayers must submit a valid Social Security number. However, special rules are in place for members of the military and adopted children.
·         Nonresident aliens
·         Certain tax dependents- If you are a dependent on the tax return of someone else, the person claiming you as a tax dependent should claim the stimulus payment.
·         People who died before January 1, 2021.

When did the IRS disburse the third stimulus checks?

The IRS disbursed the checks for the third stimulus payment during March to December 2021. The payments were distributed through direct deposits, checks or preloaded debit cards.

Do I need to pay the stimulus money back?

No-if you have not obtained it fraudulently.

Are stimulus payments considered a loan?

No.

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