IRS Updates Recovery Rebate Credit FAQ

The IRS has updated its Recovery Rebate Credit FAQ, which is organized into eight categories. The full document is available online, but you can find some of the updates below.

How does the 2021 Recovery Rebate Credit differ from the 2020 Recovery Rebate Credit?

2020 Recovery Rebate Credit

The first two rounds of Economic Impact Payments were advance payments of 2020 Recovery Rebate Credits claimed on a 2020 tax return. The IRS issued the first and second rounds of Economic Impact Payments in 2020 and in early 2021.

2021 Recovery Rebate Credit

The third round of Economic Impact Payments, including the plus-up payments, were advance payments of the 2021 Recovery Rebate Credit claimed on a 2021 tax return. The IRS began issuing the third round of Economic Impact Payments in March 2021 and continued through December 2021. In addition, the third payments differ from the earlier payments in several respects:

  • Payment amounts are different. The maximum credit is $1,400 per person, including all qualifying dependents, claimed on a tax return. Typically, this means a single person with no dependents will have a maximum credit of $1,400, while married taxpayers who file a joint return that claims two qualifying dependents will have a maximum credit of $5,600.
  • Qualifying dependents expanded. Unlike the 2020 Recovery Rebate Credits and first two rounds of Economic Impact Payments, the 2021 Recovery Rebate Credit and third round of Economic Impact Payments include additional amounts for all dependents, not just children under 17. Eligible individuals will get up to $1,400 for each qualifying dependent claimed on their return, including older relatives like college students, adults with disabilities, parents, and grandparents.
  • Income thresholds changed. The credit amount begins to be reduced at the same income thresholds as the 2020 Recovery Rebate Credits, for example with an adjusted gross income of more than $75,000 if filing as single or $150,000 if filing as married filing jointly.

Who is eligible?

This is an especially thorny question, and the IRS goes into great detail on this. In summary, the eligibility requirements for the 2021 Recovery Rebate Credit are the same as they were for the third Economic Impact Payments, except that the credit eligibility and amount are based on your 2021 tax year information. The third Economic Impact Payments were based on your 2019 or 2020 tax year information.

If you didn’t qualify for the third Economic Impact Payment or did not receive the full amount, you may be eligible to claim the 2021 Recovery Rebate Credit based on your 2021 tax information. If you received the full amount for the third Economic Impact Payment, you won’t need to include any information about it when you file your 2021 tax return.

You received the full amount of your third Economic Impact Payment if the total amount was as follows:

  • $1,400 for an eligible individual who has a valid Social Security number (SSN).
  • $2,800 for married couples filing a joint return if both spouses have a valid SSN.
  • $2,800 for married couples if one spouse has a valid SSN and one spouse was an active member of the U.S. Armed Forces at any time during the taxable year.
  • $1,400 for each qualifying dependent who has a valid SSN or Adoption Taxpayer Identification Number (ATIN) issued by the IRS.

Generally, if you were a US citizen or US resident alien in 2021, you were not a dependent of another taxpayer, and you either have a valid SSN or claim a dependent who has a valid SSN or ATIN, you are eligible to claim the 2021 Recovery Rebate Credit. You may also be eligible if you file a joint return with your spouse, you or your spouse were a U.S. citizen or U.S. resident alien in 2021, and either you, your spouse, or both of you, have a valid SSN or you claim a dependent who has a valid SSN or ATIN.

Your credit amount will be reduced by the amount of your third Economic Impact Payment. It is then reduced if the adjusted gross income (AGI) amount on line 11 of your 2021 Form 1040 or Form 1040-SR is more than the following values:

  • $150,000 if married and filing a joint return
  • $150,000 if filing as a qualifying widow or widower
  • $112,500 if filing as head of household
  • $75,000 for all others

No credit is allowed when AGI is equal to the following amounts:

  • $160,000 if married and filing a joint return
  • $160,000 if filing as a qualifying widow or widower
  • $120,000 if filing as head of household
  • $80,000 for all other filing statuses

Is there more?

There is a lot more to know about this credit. Contact R&A if you need guidance.

About this Author

Adam specializes in international tax planning and analysis. Since 2012 he has coordinated offshore compliance submissions, international tax training relating to foreign pension plans, foreign investment in US property, and general foreign compliance. In addition, in conjunction with legal counsel, he assists international families regarding planning, entity structure, and transaction analysis.