Stimulus payments have been a critical lifeline for many Americans during the coronavirus crisis. But what if you didn’t receive the full amount due to life changes such as a new baby or lower income? Rest assured, there’s a way to solve this — in the form of a recovery rebate credit.
You might be wondering what exactly a recovery rebate credit is and what it has to do with your stimulus. You’re not alone — it’s not a common term. The recovery rebate and your stimulus payments are actually one in the same. It’s just that the recovery rebate credit is paid as part of filing your return.
Already know all about this credit? Find out how H&R Block can help you by visiting hrblock.com/tax-center/filing/credits/recovery-rebate-credit. The recovery rebate credit may provide additional stimulus check money
When the stimulus payments were calculated in 2020, they were intended to be an advance credit on your 2020 return. To get the payments out quickly, the IRS used your most recent tax information to determine how much you should receive. For most, that calculation was spot on.
For some, the stimulus payments missed out on life changes that could have increased the total amount. Now that filing season is here, you can claim any additional stimulus money through the recovery rebate credit (also sometimes called stimulus reconciliation or in casual terms, stimulus backpay or refund recovery credit).
Concerned that the stimulus reconciliation will reduce your refund or that you’ll have to pay part of it back? Don’t worry, the IRS has stated that if you received too much, you won’t have to pay it back.
Who qualifies for a recovery rebate credit (stimulus backpay)?
The qualifications start with stimulus eligibility. For the first and second stimulus payments, that includes everyone except those:
Who can be claimed as a dependent on someone else’s return
Without a valid social security number (except for certain U.S. armed forces if one spouse has an SSN)*
With adjusted gross income above the maximum phase-out
Estates and trusts
*A qualifying child for the payments can have an SSN or ATIN
For single or married filing separately taxpayers, the credit is phased-out (or lowered) for those with AGI over $75,000.
For head of household filers, the phaseout begins with AGI over $112,500 and married filing jointly phaseout begins with AGI over $150,000.
If your eligibility or situation changed (such as a first-time filer), you might find that you’ll receive additional stimulus money. Check out the section below on how to claim the recovery rebate credit.
Here are a few examples of who might have missed out on stimulus money:
Families with a birth or adoption
Separated and divorced parents who alternate years to claim their children
Some first-time filers, such as college students who are no longer dependents
People who haven’t filed in a while
People with a lower AGI in 2020
That last example—lower income—may describe you if you experienced unemployment, reduced hours or a job change in the last year.
While the additional stimulus money from the recovery rebate is good news, you should take note that the situations above can also affect your tax refund (or what you owe). To read the top five coronavirus tax impacts, visit hrblock.com/tax-center/filing/coronavirus-tax-impacts.
How does the recovery rebate credit work?
Let’s go through a couple of scenarios to show how the credit could be paid out.
Scenario 1 – First-time filer
Shelly, a 2020 college graduate, didn’t receive any stimulus in the first round because she was claimed as a dependent on her parents 2019 return. However, she is no longer a student and doesn’t qualify as her parents dependent for 2020. When she files her own return for 2020, Shelly can claim the recovery rebate credit to receive the $1,200 for the first round of stimulus and $600 for the second round of stimulus.
Tip: If you’re a college student new to filing, check out the Student Tax Filing Guide by visiting hrblock.com/tax-center/student-tax-guide.
Scenario 2 – New baby
Jo and Nic married in Jan. 2020 and had a baby in Oct. 2020. They were both single on their 2019 returns, and they each received $1,200 in first round of stimulus checks in 2020. When they file their 2020 return, they will claim their child on the return and determine they should receive $1,100 in additional recovery rebate credit ($500 for round one plus $600 for round two).
Scenario 3 – Divorced couple
Gerri and Larry divorced early in 2020 and have no dependents. Based on their 2019 jointly filed return, they didn’t qualify for any stimulus due to Gerri’s income. When Larry files as married filing separately in 2020, he only has $50,000 in gross income and qualifies for $1,200 with the first round of stimulus and $600 for the second round.
How do you claim the recovery rebate credit?
The recovery rebate credit should be included when you file your 2020 tax return.