Some taxpayers who claim the 2020 Recovery Rebate Credit (RRC) on their 2020 tax returns are discovering that they may be getting a different amount than they expected. Let's take a closer look at why this is happening.
The first and second Economic Impact Payments (EIP) were advance payments of the 2020 credit. Most eligible taxpayers already received the first and second payments and shouldn't (and don't need to) include this information on their 2020 tax return. However, those who didn't receive a first or second EIP or received less than the full amounts may be eligible for the 2020 RRC. To claim the credit, however, they must file a 2020 tax return - even if they don't usually file a tax return.
How the Rebate Recover Credit Works
When it processes a 2020 tax return claiming the credit, the IRS determines the eligibility and amount of the taxpayer's credit based on the 2020 tax return information and the amounts of any EIP previously issued. If a taxpayer is eligible, the credit is reduced by the amount of any EIPs already issued to them.
- If there is a mistake with the credit amount (Line 30 of the 1040 or 1040-SR), the IRS will calculate the correct amount, make the correction and continue processing the return.
- If a correction is needed, there may be a slight delay in processing the return and the IRS will send the taxpayer a letter or notice explaining any change.
Taxpayers who receive a notice saying the IRS changed the amount of their 2020 credit should read the notice and review their 2020 tax return. Taxpayers who disagree with the IRS calculation should review their letter as well as the questions and answers for what information they should have available when contacting the IRS.
Common reasons that the IRS corrected the credit are as follows:
- The individual was claimed as a dependent on another person's 2020 tax return.
- The individual did not provide a Social Security number valid for employment.
- The qualifying child was age 17 or older on January 1, 2020.
- Math errors relating to calculating adjusted gross income and any EIPs already received.
Don't hesitate to call if you have any questions about this topic.
Mr. Maker is a certified Public Accountant and serving the South Asian community since 1993.
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