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17427: 1040 - Recovery Rebate Credit (Drake21)


1040 Individual

How do I get the recovery rebate credit to be calculated on Form 1040, line 30? 


Due to COVID-19, most eligible taxpayers received a third economic impact payment between March and December 2021. To ensure that all eligible taxpayers received the proper amount, an entry must be made on the 2021 tax return to reconcile the EIP amount received with the amounts for which the taxpayer is eligible. If the taxpayer received a lower amount for the payment (or did not receive the stimulus payment at all), they may be eligible to claim the recovery rebate credit on their 2021 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 2021 return to claim the credit. There would not be another way to file and claim EIP3, if not previously received. Since the RRC is a refundable credit, eligible taxpayers can e-file their 2021 return to claim the Recovery Rebate Credit, even if they had zero income in 2021, but are otherwise eligible. 

The third EIP was issued in the following amounts: $1400 per taxpayer ($2800 for joint filers) and $1400 for each qualifying child or qualifying relative (see below for requirements). 

For the third EIP, Notice 1444-C was issued to taxpayers reporting the amount of EIP received (including any plus-up payments). In January 2022, the IRS will issue Letter 6475 to report the total EIP3 disbursement for use when filing the 2021 individual return. Enter the amount(s) on the RRC screen in the applicable box(es).

If the taxpayer did not receive the economic stimulus payment, enter a zero (0) in the applicable box.

In view mode, Wks Recovery Rebate calculates whether the taxpayer is eligible for an additional credit on Form 1040, line 30.

Common Scenarios and Troubleshooting

Choose from the following topics for more information: 

Qualifying Child or Qualifying Relative

If you are expecting an additional credit to be calculated, review the requirements for a qualifying child or qualifying relative for the EIP or Recovery Rebate Credit (FAQ C7):

"A child is your qualifying child if the following conditions are met:

  • Relationship to the individual who’s eligible for the payment: The child is your 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 19 at the end of the tax year,
    • under age 24 at the end of the tax year, a student, and younger than you, or
    • any age and permanently and totally disabled.
  • Child's citizenship: The child’s a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico.
  • Child's residency: The child lived with you for more than half of the tax year.
  • Support for child: The child didn’t provide over half of his or her own support for the tax year.
  • Child's tax return: The child doesn’t file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid).

A person is your qualifying relative if the following conditions are met:

  • The person can't be your qualifying child or the qualifying child of any other taxpayer.
  • The person either is related to you in one of several ways or lived with you all year as a member of your household (and your relationship must not violate local law).
  • The person is a U.S. citizen, U.S. national, U.S. resident alien, or a resident of Canada or Mexico.
  • The person's gross income for the year must be less than $4,200 for 2019 tax returns or $4,300 for 2020 tax returns. (Exceptions exist if the person is disabled.)
  • You must provide more than half of the person's total support for the year. (Exceptions exist for multiple support agreements, children of divorced or separated parents, and parents who live apart.)
  • The person doesn’t file a joint return for the year (or files it only to claim a refund of withheld income tax or estimated tax paid)."

Note that the credit is based on the total persons eligible to be claimed in 2021. For example, a couple filing MFJ has two children. Child A is no longer a qualifying child in 2021. Child B was born in 2021 and is a qualifying child in 2021. The total number of eligible children for the purposes of RRC, however, on the 2021 return is only 1. If they already received the EIP 3 in the amount of $4200 (2 adults + 1 dependent), no additional amount is calculated or due. 

Separated or Divorced Parents

Some separation/divorce agreements allow dependents to be claimed on each parent's return in alternating years. The EIP payment was based on which taxpayer claimed that dependent on the 2020 return. The RRC is based on which parent claims the dependent on the 2021 return. Thus, if parent A claimed the dependent in 2020, they would have received EIP payment for that dependent. Then, if parent B is claiming the dependent in 2021, 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 Third Economic Impact Payment or an additional payment based on their 2020 or 2019 information, to pay back all or part of the payment if, based on the information reported on their 2021 tax returns, they would have qualified for a lesser amount."

The preparer should review the return to determine if the taxpayer meets all eligibility requirements (listed above). 

Former Dependents

If the taxpayer was claimed as a dependent on a 2020 return, but is not a dependent of another in 2021, they may be eligible for the RRC even if the person who claimed them on the tax year 2020 return received the stimulus payment(s) for them in calendar year 2021. The Recovery Rebate Credit is based on the facts of the 2021 tax return. If they meet all the requirements, the software will calculate the credit. If you determine that they should not receive the credit, or the taxpayer does not want to claim the credit, check the box Taxpayer is not claiming any Recovery Rebate Credit at the bottom of the RRC screen. Per the IRS FAQ

"If you were claimed as a dependent on someone else’s tax return for 2020, you were not eligible for the third Economic Impact Payment. If no one can claim you as a dependent for 2021 and you are otherwise eligible, you can claim the 2021 Recovery Rebate Credit, and must file a 2021 tax return to claim the credit."

MFJ to MFS

If the 2020 return was filed as MFJ and they are filing their 2021 return as MFS, the amount of EIP 3 shall be split in half per the 1040 Instructions:

"If your EIP 3 was based on a joint return, you and your spouse are each treated as having received half the payment that was issued."

If using the split return process, 1/2 of the amount entered on the RRC screen will be carried to the RRC screen in the MFS return, without regard to the TSJ box on the dependent screen (if present). 

SSN Requirement

The Consolidated Appropriations Act, 2021 repealed the requirement for both taxpayers to have a valid SSN for any EIP to be allowed. This guideline applies to the third EIP and 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 2021. 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. 

A valid SSN is defined as "...one that is valid for employment in the United States and is issued by the Social Security Administration (SSA) before the due date of [the] 20YY tax return..." If none of the taxpayers on the return possess valid SSNs, you can suppress the calculation of the RRC for the individual who does not have a valid SSN by checking the applicable box at the bottom of the RRC screen or screen 2 (if a dependent): 

  • Taxpayer's SSN is not valid for Employment at the bottom of the RRC screen.
  • Spouse's SSN is not valid for Employment at the bottom of the RRC screen.
  • Don't include in RRC calc at the bottom of screen 2 for the relevant dependent(s).

The option at the bottom of the RRC screen Taxpayer is not claiming any Recovery Rebate Credit will suppress the entire RRC calculation on the return. 

Deceased Taxpayer

If the taxpayer died in 2021, meets the other requirements, but did not receive the full amount of EIP 3, they are eligible for the Recovery Rebate Credit on their 2021 tax return. Per the 1040 Instructions:

"If you are preparing a return for someone who died in 2021, if that person was otherwise eligible to receive the RRC, you can claim the RRC for that person on their return."

Suppressing Calculation

If the taxpayer does not want to claim the credit, check the box Taxpayer is not claiming any Recovery Rebate Credit at the bottom of the RRC screen. This will suppress the entire RRC calculation for the return. If the taxpayer/spouse/dependent does not have a valid SSN, see above for suppressing the calculation for that individual. 

Note: you still have to enter the amount of stimulus payments received (even if zero) on the RRC screen to prevent the EF message 0006 regarding missing required data. 

Phase-out Limitations

The RRC is subject to limitations. The recovery rebate amount is subject to phase out if the adjusted gross income for 2021 exceeds the following amounts: 

  • $150,000 for married filing joint
  • $112,500 for head of household
  • $75,000 for any other filing status

The credit will be reduced to $0 once AGI reaches and exceeds:

  • $160,000 for married filing joint
  • $120,000 for head of household
  • $80,000 for any other filing status

When applicable, the Wks Recovery Rebate will calculate the reduction amount required based on the filing status and adjusted gross income (AGI). This calculation is shown on lines 9-12 of Wks Recovery Rebate

*If the income on the return is over the applicable phase-out threshold, no entry is required on the RRC screen.

Taxpayer Notices

Taxpayers may receive notices regarding the recovery rebate credit and any changes that were made by the IRS. The following table summarizes some of the CP codes and their meanings.

681 We changed the amount claimed as a Recovery Rebate Credit on your tax return. Information on your return indicates that either you (or your spouse if married filing jointly) is claimed as a dependent on another taxpayer's tax return. 
682 

We changed the amount claimed as Recovery Rebate Credit on your tax return. The error was in one or more of the following: 

  • Your Social Security number (or your spouse's Social Security Number if married filing jointly) was either missing or incomplete. 
  • Your last name (or your spouse's last name if married filing jointly) does not match our records. 
  • You (or your spouse if married filing jointly) used an Individual Taxpayer Identification Number (ITIN) and there is no indication that one spouse was a member of the Armed Forces of the United States at any time during the tax year, so that an exception does not apply to the rule that both spouses must have a Social Security number. 
  • We compared the Social Security numbers (SSN) shown on your tax return with records from the Social Security Administration. According to these records, the SSN shown on your tax return for you, your spouse, or one or more of the dependents belongs to a deceased person. You must contact the Social Security Administration if this information is incorrect. 
  • The Social Security number shown on your tax return for you, your spouse, or one or more of the dependents listed on your return was not issued before the due date of the tax return. 
683

We changed the amount claimed as Recovery Rebate Credit on your tax return. The error was in one or more of the following: 

  • The Social Security number of one or more individuals claimed as a qualifying dependent was missing or incomplete. 
  • The last name of one or more individuals claimed as a qualifying dependent does not match our records. 
  • One or more individuals claimed as a qualifying dependent exceeds the age limit. 
  • Your adjusted gross income exceeds $75,000 ($150,000 if married filing jointly, $112,500 if head of household). 
  • The amount was computed incorrectly. 

 


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