How do I get the recovery rebate credit to be calculated on Form 1040, line 30?
Due to COVID-19, most eligible taxpayers received economic impact payments during 2020. The first EIP was issued in summer 2020 and the second was scheduled to be issued between December 2020 and January 2021. To ensure that all eligible taxpayers received the proper amount, an entry must be made* on the 2020 tax return to reconcile the EIP amounts received with the amounts for which the taxpayer is eligible. If the taxpayer received a lower amount for the payments (or did not receive the stimulus payments at all), they may be eligible to claim the recovery rebate credit on their 2020 tax return.
Note: If a taxpayer is eligible for the Recovery Rebate Credit, but does not have anything else to report on a return, they can file a 2020 return to claim the credit. There would not be another way to file and claim EIP1 or EIP2, if not previously received. Since the RRC is a refundable credit, eligible taxpayers can e-file their 2020 return to claim the Recovery Rebate Credit, even if they had zero income in 2020.
The first EIP was issued in the following amounts: $1200 per taxpayer ($2400 for joint filers) and $500 for each qualifying child. The second EIP was issued in the following amounts: $600 per taxpayer ($1200 for joint filers) and $600 for each qualifying child.
For the first EIP, Notice 1444 was issued to taxpayers reporting the amount of EIP received. Notice 1444-B will be issued to report the amount of EIP received in the second payment. Enter those amounts on the RRC screen in the following boxes:
- Enter the first payment in the box Enter the amount, if any, of the economic stimulus payment you received (before offset). This was generally received in Summer 2020. This amount can be found on Notice 1444.
- Enter the second payment in the box Enter the amount, if any, of the second economic stimulus payment the taxpayer received (before offset). This was generally received late December 2020 or early January 2021. This amount can be found on Notice 1444-B.
- Per the Consolidated Appropriations Act, 2021, the second EIP amount is required to be issued no later than January 15, 2021.
If the taxpayer did not receive one or both of the economic stimulus payments, enter a zero (0) in the applicable box(es).
In view mode, Wks Recovery Rebate calculates whether the taxpayer is eligible for an additional credit on Form 1040, line 30.
If you are expecting an additional credit to be calculated, review the requirements for a qualifying child for the EIP or Recovery Rebate Credit:
"You will receive an additional $500 Payment1 for each qualifying child you claimed on your tax return being used to calculate your Payment. Here's the criteria you should consider:
- Relationship to the individual who is eligible for the Payment: The child is the son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them (for example, grandchild, niece, or nephew).
- Child's age: The child was under age 17 at the end of 2
- Dependent of the individual who's eligible for the Payment: The child is claimed as a dependent on the 2018 or 2019 tax return or entered on the Non-Filers: Enter Payment Info Here tool.
- Child's citizenship: The child is a U.S. citizen, U.S. national, or U.S. resident alien.
- Child's Residency: Child must have lived with the individual eligible for the Payment for more than half the tax year.
- Support for Child: Child must not provide over half of own support for the tax year.
- Child's taxpayer identification number: The child has a valid work eligible Social Security number or an Adoption Taxpayer Identification Number (ATIN) that was issued before July 15, 2020."
1$500 applies to the first EIP issued. The second EIP allows for $600 per qualifying child. The guidelines for a qualifying child are the same for both payments.
2The IRS FAQs say the end of the taxable year and mention 2019 with regards to the EIP. The taxable year for the purposes of the Recovery Rebate Credit is 2020, so the child would have to have been under the age of 17 as of December 31, 2020 to be a qualifying child. Review the worksheet in page 59 of the 1040 Instructions for details.
Separated or Divorced Parents
Some separation/divorce agreements allow dependents to be claimed on each parent's return in alternating years. The EIP payments were based on which taxpayer claimed that dependent on the 2018/2019 return. The RRC is based on which parent claims the dependent on the 2020 return. Thus, if parent A claimed the dependent in 2018/2019, they would have received EIP payments for that dependent. Then, if parent B is claiming the dependent in 2020, they may be eligible for the RRC for that dependent. There is no provision requiring the EIP to be repaid. Per the IRS Frequently Asked Questions:
"No, there is no provision in the law that would require individuals who qualify for a Payment based on their 2018 or 2019 tax returns, to pay back all or part of the payment, if based on the information reported on their 2020 tax returns, they no longer qualify for that amount or would qualify for a lesser amount.
For example, you received $500 for your child whom you claimed on your 2018 or 2019 tax return. You do not claim the child on your 2020 tax return because the child’s other parent claims the child. You will not be required to pay back the $500 even if the child’s other parent claims $500 for the same child on his or her 2020 tax return."
The preparer should review the return to determine if the taxpayer meets all eligibility requirements (listed above).
The Consolidated Appropriations Act, 2021 repealed the requirement for both taxpayers to have an SSN for any EIP to be allowed. This guideline applies retroactively to the first EIP as well as the second. This is also used when calculating the Recovery Rebate Credit. As long as either the taxpayer or the spouse has a valid SSN, the EIP or credit is allowed for the SSN taxpayer and any dependent children that also have a valid SSN. The spouse with the ITIN is not eligible to receive the RRC (or EIP) unless the taxpayer was a member of the Armed Forces during 2020. No amount of credit or EIP is allowed for dependent children that do not possess a valid SSN. The software will calculate the RRC based on the eligible individuals entered on the return as well as the EIP amounts entered on the RRC screen.
The RRC is subject to limitations. Per the IRS: "Your recovery rebate amount will be phased out if your adjusted gross income for 2020 exceeds $150,000 if you are married filing a joint return, $112,500 if you are using the head of household filing status, or $75,000 if you are using any other filing status." The IRS goes on to discuss the reduction: stating that: "An individual’s payment is reduced by 5% of the excess of the individual’s AGI over the applicable threshold." The credit will be reduced to $0 once AGI reaches and exceeds $198,000 for joint filers, $136,500 for a head of household, and $99,000 for everyone else.
When applicable, the Wks Recovery Rebate will calculate the reduction amount required based on the filing status and adjusted gross income (AGI). This is shown on line 14 of Wks Recovery Rebate. This reduction amount is subtracted from both EIP 1 and EIP 2, if present. Below is an example of the worksheet for a MFJ return with one qualifying child that received less than the full amount of EIP 1 and EIP 2:
*If the income on the return is over the applicable phase-out threshold, no entry is required on the RRC screen.
For more information about the recovery rebate credit, see the IRS instructions, Topic J, and Notice 1444. For a demonstration, watch the video Recovery Rebate Credit.