What is the 2020 Federal Recovery Rebate Credit?


During 2020 the CARES Act and the 2021 Consolidated Appropriations Act made available Economic Impact (Stimulus) Payments for all taxpayers who had a valid Social Security Number and were not a dependent on another’s return (with the exception for dependent children under 17). The first payments went out in 2020 and the second payments went out in early 2021.

These two economic impact payments were an advance payment of the Recovery Rebate Credit which is part of the 2020 federal 1040 as new line 30. Therefore any calculated credit will be reconciled with the payments the taxpayer received.

It is important to note that since the vast majority of taxpayers received the full amount of both economic impact payments this credit will be calculated to zero on their 2020 federal return.

This refundable credit is for those individuals who did not receive their full amount of their economic impact payments. This covers the following:

  • Taxpayer and (if applicable) their spouse did not receive the first and/or second economic impact payment
  • Either or both of the two economic impact payments were limited because their 2018 or 2019 income was greater than the income limit based on their filing status
  • Taxpayer did not receive either of their payments for all of their eligible children

 

Facts about the Recovery Rebate Credit:

  • The maximum credit amount that may be claimed is:
    • 1st Economic impact payment which was $1,200 ($2,400 if MFJ) plus $500 for each dependent child under 17 the taxpayer had in 2020
    • 2nd Economic impact payment which was $600 ($1,200 if MFJ) plus $600 for each dependent child under 17 the taxpayer had in 2020
  • Individuals (including eligible children) must have a Social Security Number that is valid for employment
  • The following individuals are NOT eligible for this credit
    • Individuals who are 17, 18, 19-24 students who are claimed as a dependent on their parent's federal return
    • Other individuals who are claimed on another’s federal return
  • Phase out range for credit is:
    • Single filers - $75,000 (reduced to zero when income reaches $99,000)
    • Married filing joint filers - $150,000 (reduced to zero when income reaches $198,000)
    • Head of Household filers - $112,500 (reduced to zero when income reaches $146,000)
  • Credit is based on taxpayer’s 2020 income, filing status and eligible children
  • Credit is reconciled with the amount of Economic Impact (Stimulus) Payments received in 2020
  • If an eligible individual was entitled to Economic Impact (Stimulus) Payments and received payments greater than the recovery rebate credit calculated on the 2020 return, he or she still in most cases gets to keep the original payment. The excess does not need to be repaid to the IRS