 Income Tax 2021-2022 Recovery Rebate Credit Overview. Get ready to get refunds to the max diving into Income Tax 2021-2022. Most of this information can be found in the Form 1040 Instructions Tax Share 2021 on the IRS website, irs.gov, irs.gov. Income Tax Formula. We're down here at the bottom with the credit area noting that credits and deductions are both good, but if you had a dollar deduction and a dollar credit, the dollar credit would typically be better because you typically get the full dollar of the credit as opposed to the dollar deduction, which would be a decrease to the taxable income resulting then in the tax being calculated based on the taxable income. The credits down below are generally categorized into two categories, non-refundable credits and refundable credits. Non-refundable credits don't take the tax liability below zero whereas the refundable credits may and if they did you'd get something that would still be called a refund but isn't it really a refund at that point but more of a benefit program at that time. This is the second page of the Form 1040. We're looking at line 30, the Recovery Rebate Credit. We've got the little worksheet to calculate the Recovery Rebate Credit. It is down here in the refundable area meaning it could take the tax liability in essence below zero. Now just give a quick recap on the Recovery Rebate Credit here. Note that the Recovery Rebate Credit is tied to the stimulus payments or the economic impact payments. There are three stimulus payments up to this point in time. The first two stimulus payments are actually applied to the prior tax return. The third stimulus payment is the one that's applied here to the tax return for 2021. The way these things are tied together meaning the stimulus payment or the economic impact payment and this Recovery Rebate Credit is that the stimulus payment is basically a pre-payment in a similar way as the advanced child payments were pre-payments to the child tax credit. It's a little bit more confusing with these credits because we've never seen a Recovery Rebate Credit before. Number one and number two, the names are nothing similar with regards to the stimulus payments being a pre-payment of the Recovery Rebate Credit. They didn't call it pre-payment. They didn't name it Recovery Rebate Credit. And three, if everything went correctly, you would have gotten the entire amount of the pre-payment of the Recovery Rebate Credit in the form of the earned income credit already and therefore you wouldn't really be reporting anything on the tax return. The tax return is here to kind of fix the problem in that the stimulus payments or the economic impact payments did not go out properly. That's when the Recovery Rebate comes into play unlike, say, the child tax credit where you have the advanced portion which only part of the credit therefore everybody kind of calculated. So the fact that it's new, the fact that the name is a little bit confusing and it's kind of confusing to note that it was a pre-payment in general makes the economic impact payments and Recovery Rebate payments a little bit confusing. The other confusing component is that there's three of them that went out. The first two were pre-payments for tax year 2021 to be remedied in the same fashion with the Recovery Rebate Credit if there was something wrong with them but in that case for the first two that would happen on the 2021 on the 2020 tax return. The third one is the one we're focused in on here that if there was any problems with it we would remedy those problems ultimately here with the Recovery Rebate Credit on the 2021 tax return which would be filed at some time in 2022. So that's the general recap. Okay so the Recovery Rebate Credit, the 2021 Recovery Rebate Credit was put out to eligible individuals as an advanced payment called an economic impact payment. So we might have heard it called the stimulus payments or the economic impact payments. There's three of them that went out. We're looking at the third one and you want to think of it. Basically it would have been nicer if they were able to think this through. This is the first time this has ever happened but if they were able to think it through they could have called it an advanced Recovery Rebate Credit which would have told you that it was an advanced payment or something like that but no it's the economic impact payment which is an advanced payment of the Recovery Rebate Credit. So the economic impact payment was based on your 2019 or 2020 tax year information. That means that it's a free payment and they had to make an estimate because we note that the taxes are basically based on 2021 taxes are going to be based on the information that you give to the IRS in 2021 which you don't really have until you report the taxes by some point in 2022 typically April 15th or April 18th. That means if they're going to give a pre-payment out for tax year 2021 they have to base it on something other than the 2021 tax return and obviously they would then go back to the 2020 tax return if they had it and if not back to the 2019 tax return or possibly then to any other information that they have to send out the economic impact payments. That means that they can make an error with those payments because even though it's a pretty straightforward payment there's not too much like complexity or nuance in the calculation. It still has a phase out related to it and it still has a component related to dependence related to it and people need to have filed in order to for the IRS to know about them. So we still have issues where the the payment could have been different than what should have been basically received if you were actually to file the 2021 tax return and that would mean that we would remedy any of those problems when we have the actual data that we would give to the IRS with the 2021 tax return the recovery rebate credit then shoring up any problems if necessary. So the 2021 recovery rebate credit is figured like the economic impact payment except the credit eligibility and the credit amount are based on 2021 tax year. So we're just going to do the same thing it's a pretty pretty straightforward calculation but again there's still a phase out with it that can complicate things. We'll calculate it for 2021 compared to 2020 if it's different we'll try to remedy that difference here. So if you don't receive the full amount of your 2021 recovery rebate credit as an economic impact payment you may be able to claim the recovery rebate credit on your 2021 form 1040 or form 1040 SR. Generally you are eligible to claim the recovery rebate credit if in 2021 you or your spouse are filing a joint return where a US citizen or US resident alien weren't a dependent of another taxpayer and have a valid social security number. So those are basically that's basically it so it's fairly straightforward that they should be able to get the calculation right for the most part. Use the recovery rebate credit worksheet to figure the credit if any you can claim. For more information on the recovery rebate credit go to irs.gov or slash eip3qa and note if you are preparing a return for someone who died in 2021 if that person was otherwise eligible to receive the rrc recovery rebate credit you can claim the rrc recovery rebate credit for that person on their return economic impact payment the eip3 so again we're talking about the third economic impact payment enough to be confused with the first two economic impact payments which were similar in nature but applied to the prior tax return 2020 prepayments that is if the 2020 tax return eip3 economic impact payment 3 stimulus payment 3 then is applied to 2021 prepayments of 2021 remedied by the recovery rebate credit if there was a problem with it for tax year 2021 which we would file by April 15th or April 18th generally of 2022 the advance of the 2021 recovery rebate credit was the third round of economic impact payments otherwise known as the eip3 these payments were sent out beginning in March 2021 note eip3 was the only economic impact payment made between March and December 2021 you should get we have notice 1444c you should have received a notice 144c from the irs that shows how much eip3 the economic impact payment 3 the stimulus payment 3 you were issued including any plus up payments made after the irs processed your 2020 tax return now what's a plus up payment you they might have got the payment wrong for some reason and they tried to put in all these tools where's this whole thing to try to shore up and get people the to remedy any kind of problems with the stimulus payments so they would call those basically a plus up payment so for example if they had the 2019 tax return but and they based it on that but they didn't have your 2020 tax return and if they have the 2020 tax return they could have made an estimate which would be higher so you gave them the 2020 tax return and then they gave you a plus up payment even though this payment is actually based on is going to ultimately be based on 2021 taxes so so that's where that you could have multiple payments now uh you should get this form if you don't get this form or if you want to check it in another way you can also go to the irs website and take log into your account there and i believe that you can find the payment information there i think it's useful to get yourself on that and clients logged in because they're trying to do more and more online similar to a banking situation you would think that they could do a whole lot more online people you would think would have an online account similar to like a banking type of situation and be able to do that in a secure way and everything and as they do these kind of prepayments it becomes more and more necessary because you need that information in order to calculate your tax return properly and if you do it incorrectly meaning if you report something that's different than they report on form 1444c then they're probably almost certainly going to give you a notice or it's going to cause a delay of some kind because it's just like you reporting something different unlike a w2 form than the w2 form you were given the iris already has a copy of it so if you report something different then this the machine will pick it up they don't even need a person to kind of pick that up and it could cause problems at that point again if they're wrong you might have to take action and try to fix it in some way but you know in general you want to you want to be reporting the amount that's on the iris aside reported on the 1444c in general unless again there's an issue that comes up so have the notices available when you complete the recovery rebate credit if you haven't received notice 1444c or you can't locate your notices you can also go to the irs.gov forward slash accounts for the amounts to enter online 13 of the worksheet so you can go to your account on irs.gov you may be able to claim the recovery rebate credit only if your economic impact payment was less than your credit this happens when so meaning the payment got was wrong for some reason because they based it on 2019 or 2018 or some other information and they didn't have all the information they needed for 2021 and therefore there's a difference that's when you would have to get this recovery rebate credit in action so that could happen you you are eligible but we're not issued an eip3 so possibly they just didn't give you one because they didn't have your information possibly that's one option your eip3 was less than 1400 or 2800 if married filing jointly plus 1400 for each dependent you had in 2021 and that could happen maybe if they didn't have the dependent information or if someone a new child was born or saw adoption happened or something like that or if uh if there was a phase out kind of thing that happened with an income level phase out so you don't qualify for the recovery rebate credit if you received 1400 plus 1400 for each dependent you had in 2021 so if they got it right and you're supposed to get 1400 and you received 1400 for you know yourself and each dependent then you already got the credit and it's not like the advanced child tax credit where they only give you like half the credit and then you get half at tax time no they're trying to give you the whole amount up front and the recovery rebate credit is really just a fixing tool to fix any kind of problems that have happened with the prepayment that should be the entire amount so you're filing a joint return for 2021 and together you and your spouse received 2800 plus 1400 for each dependent you had in 2021 married filing jointly if your 2000 if your eip3 the third economic impact payment the third stimulus payment that is was based on a joint return you and your spouse are each treated as having received half the payment that was issued so they could send it out in joint but they really you kind of think about it as them sending it out basically per social security number so if you're say you're married filing joint then they sent you like twice you know the amount for the married filing joint but you don't really think of it as one amount per return it's kind of like they sent out per social security number in essence per person so if only one of you has a valid social security number and neither you nor your spouse was a member of the u.s armed forces at any time during 2021 your credit amount will be limited if applicable if applicable include your spouse's eip3 as shown on your spouse's notice 1444c line 13 valid social security number what does it mean to be valid social security a valid social security number is one that is issued on or before the due date of your 2021 return including extensions caution if you reside in a u.s territory don't enter an amount online 30 and do not complete the recovered rebate credit worksheet in general the tax authorities in american Samoa, Guam, Puerto Rico and us virgin island islands and the northern mariana islands islands will provide the recovery rebate credit to eligible residents territory residents should should direct questions about eip3 or the recovery rebate credit to the tax authorities in the territories where they reside