What you need to know about the Recovery Rebate Credit
The Internal Revenue Service (IRS) has announced that tax season will start on Friday, February 12, 2021. The IRS will begin accepting and processing 2020 tax year returns on that date. The February 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the December 27, 2020 tax law changes, which included providing a second round of Economic Impact Payments among other benefits.
There are some important things that tax payers need to know about the Recovery Rebate Credit.
What is the Recovery Rebate Credit?
- The Recovery Rebate Credit is authorized by the Coronavirus Aid, Relief, and Economic Security (CARES) Act and the COVID-related Tax Relief Act. It is a tax credit against your 2020 income tax. Generally, this credit will increase the amount of your tax refund or decrease the amount of the tax you owe.
- The Recovery Rebate Credit was eligible to be paid in two rounds of ADVANCE payments during 2020 and early 2021. These advanced payments of the Recovery Rebate Credit are referred to as the first and second Economic Impact Payments.
Advance Payments of the Credit
Individuals who received the full payment of both Economic Impact Payments DO NOT need to complete any information about the Recovery Rebate Credit on their 2020 tax returns. They already received the full amount of the Recovery Rebate Credit as Economic Impact Payments.
- Your first Economic Impact Payment was $1,200 ($2,400 if married filing jointly for 2020) plus $500 for each qualifying child you had in 2020; and.
- Your second Economic Impact Payment was $600 ($1,200 if married filing jointly for 2020) plus $600 for each qualifying child you had in 2020.
Who can claim the Recovery Rebate Credit?
Eligible individuals who did not receive the full amounts of both Economic Impact Payments may claim the Recovery Rebate Credit on their 2020 Tax Return line 30 – Form 1040 or 1040-SR (Form 1040 for taxpayers who are age 65 or older)
The IRS Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE) programs offer free tax help for taxpayers who qualify. To find a provider near your client(s), please use this link IRS Free Tax Pre Help