IRS issues new guidance on Recovery Rebate Credit

The Internal Revenue Service updated its frequently asked questions page Wednesday on the Recovery Rebate Credit, with additional information on receiving the credit on a 2020 tax return.

The revisions modify Question 1 on how and when taxpayers can expect to get the credit; Question 4 on how the credit affects a tax refund or the amount owed; Question 5 on whether it will take longer to process a return if the taxpayer claims the credit; and Question 8 on the impact of the unemployment compensation exclusion on a taxpayer’s adjusted gross income.

“We’ll determine if reducing your AGI by the unemployment compensation exclusion now makes you eligible for the credit or for more of the credit if you received less than the full amount,” said the IRS. “If eligible, we’ll calculate the correct credit amount for you and send it to you by direct deposit or as a paper check if the result is a refund.”

Stefani Reynolds/Bloomberg

The latest FAQs also add two new questions. Question 9 covers missing Economic Impact Payments in the event that the payment arrived by check, but was lost, stolen or destroyed, and how to get a new one. Question 10 also deals with missing EIPs, and how a taxpayer can request a trace to track a first or second payment.

“If you received your payment by check and it was lost, stolen or destroyed, you should contact the IRS as soon as possible to request a payment trace so the IRS can determine if your payment was cashed,” said the IRS.

Individuals who didn’t qualify for, or didn’t receive, the full amount of their third EIP may be eligible to claim the 2021 Recovery Rebate Credit based on their 2021 tax year information, the IRS noted. They may have received their third EIP through initial and “plus-up” payments last year.

The third EIPs differ from the monthly advance Child Tax Credit payments that the IRS sent out from July through December of last year.

Most eligible people have already received their EIPs and won’t include any information about their payment when they file. But those who are missing stimulus payments should review the information on the Recovery Rebate Credit page to check their eligibility and whether they need to claim a credit for tax year 2021.

To claim any remaining credit for 2021, they need to file a 2021 tax return, even if they usually don’t file a return. Also, those who didn’t receive all of their first and second EIPs in 2020 can receive those amounts only by filing a 2020 tax return (or amending a previously filed return) and claiming the 2020 Recovery Rebate Credit. They should review the same information page to determine their eligibility.

The 2021 Recovery Rebate Credit can reduce any taxes owed or be included in the tax refund for the 2021 tax year. But filers need to make sure they don’t mix information from their 2020 and 2021 tax years.

“In particular, filers should take care to not include any information regarding the first and second Economic Impact Payments received in 2020, or the 2020 Recovery Rebate Credit, on their 2021 return,” said the IRS. “They will need the total of the third payment received to accurately calculate the 2021 Recovery Rebate Credit when they file their 2021 federal tax return in 2022.”

Taxpayers can view the current information in their online account. They can also locate similar information on Letter 1444-C, which they should have received from the IRS during 2021 after each payment, as well as Letter 6475, which the IRS mailed to them through March of this year.