IRS Recovery Rebate Credit for Economic Impact Payments

Submitted by Richard Allen, EA

There is a lot of misunderstanding about the COVID-19 “Stimulus”
payments (also called Economic Impact Payments or “EIP” payments).
EIP 1 and EIP 2 payments were made on available information from
2018 or 2019 returns.

On 2020 Form 1040 and Form 1040-SR, there is a new line 30 for the Recovery  Rebate Credit.  The recovery rebate credit was paid out to eligible individuals in two rounds of advance payments called Economic Impact Payments. The economic impact payments were based on the taxpayer’s 2018 or 2019 tax year information. The recovery rebate credit is figured like the economic impact payments except that the credit eligibility and the credit amount are based on the taxpayer’s 2020 tax year information. If the taxpayer did not receive the full amount of the recovery rebate credit as Economic Impact Payments, the taxpayer may be able to claim the
recovery rebate credit on your 2020 Form 1040 or 1040-SR.

Generally, taxpayers are eligible to claim the recovery rebate credit if in 2020 they meet ALL of the following conditions:

1. were a U.S. citizen or U.S. resident alien,

2. weren’t a dependent of another taxpayer, and

3. have a valid social security number.

This includes someone who died in 2020, if you are preparing a return for that person. Use the Recovery Rebate Credit Worksheet to figure the credit, if any, that can be claimed. For more information on the recovery rebate credit, go to IRS.gov/RRC. Tax practitioners should use extreme caution when a son or daughter was previously a dependent, and now wants to get a Recovery Rebate Credit on a 2020 returns. There is no “choice” in being a dependent. A dependent is defined by the facts and circumstances found in 1040 General Instructions and in Publication 501 “Dependents, Standard Deduction, and Filing Information”.

To verify the amounts of the EIP 1 and EIP 2 payments, ask to see the Form 1444 IRS Notice sent to the taxpayers at about the same time these payments were made.

As an alternative, the IRS has the following help on IRS.gov/RRC
Get the information you need from your account. Log in to your Federal tax account information online to view what you may need when you electronically file your 2020 tax return (Form 1040 or Form 1040-SR). Two important reasons to have an account now are:

• In the coming weeks, individuals with an account on IRS.gov/account will be able
to view the amounts of the Economic Impact Payments they received.

• Some people will need the amount of their adjusted gross income from 2019 if they use different software to file their tax returns for 2020.

IMPORTANT: Individuals will be able to get these EIP payment
amounts by going to “irs.gov/account”. This will bring up “View Your Account Information” (see attached PDF sample).  There is a lot of extremely useful information there which can be accessed by thetaxpayers. This includes:
• Balance Owed the IRS.
• Payment Activity, including refunds carried from prior year, and estimated payments, or extension payments.
• Tax Records (Transcripts of Tax Returns, Transcripts of Income Statements, and 1099s).