How to Claim the 2020 Recovery Rebate Credit

How to Claim the 2020 Recovery Rebate Credit

Wondering what the 2020 Recovery Rebate Credit is all about? When congress passed the CARES Act, there was a multitude of excitement over the provision for direct stimulus payments to qualifying taxpayers. However, when all the checks were mailed out or deposited, some taxpayers were disappointed to learn that qualification was determined based on the most recent return on file — be it 2018 or 2019. For example, taxpayers whose income exceeded the stimulus threshold on their 2019 returns but were eligible at the time of disbursal received nothing. 

This is especially frustrating to taxpayers who suffered a loss of income during COVID-19. However, if you fall into this category, you can still claim your stimulus payment as a tax rebate. On the 2020 return, there is a worksheet that allows you to calculate your stimulus amount based on your current income. This amount will be added to your 2020 refund or subtracted from your 2020 liability, depending on whether you owe or not. The Recovery Rebate will not cover back taxes or any other federal debt excluding child support.

Special Considerations

While reduced income is the most commonly-cited reason why a taxpayer would claim the rebate credit, there a multitude of circumstances that would justify claiming the credit. For example, a change in marital filing status or number of dependents could potentially make an individual taxpayer eligible for the credit. Additionally, taxpayers with no filing requirements who did not receive any stimulus payment are eligible.

If you fell out of eligibility for a full stimulus payment during 2020, you will still get to keep the original payment in most cases. However, in the event of the death of a taxpayer or jointly filing spouse prior to the receipt of the payment, the portion allocated to the deceased individual must be returned or repaid.

In late December 2020, congress passed the COVID Relief Act, authorizing a second stimulus payment based on 2019 returns. The same rules apply for claiming a 2020 Recovery Rebate Credit for the second stimulus payment. As with the first stimulus, those who provided direct deposit information on their return will likely receive their payments before recipients via the post.

If you have any questions or would like to discuss your tax situation with an expert, schedule a free consultation with Community Tax today!