Does the Internal Revenue Service owe you money?
The IRS says that over one million taxpayers may have missed out on the Recovery Rebate Credit (RRC) claimed on their 2021 tax returns. The agency is now taking steps to mail those out. While the amounts may vary, the maximum payment is $1,400 per individual. The estimated amount of payments going out will be about $2.4 billion.
Background
The American Rescue Plan Act of 2021, enacted in early March 2021, provided Economic Impact Payments (EIPs or stimulus payments) of up to $1,400 for eligible individuals or $2,800 for married couples filing jointly, plus $1,400 for each qualifying dependent, including adult dependents.
The credit amount was subject to a phaseout—the amount was reduced if your adjusted gross income was more than $75,000 (or $150,000 for married couples filing jointly). The 2021 RRC amount was entirely reduced to $0 for taxpayers with an adjusted gross income of $80,000 or more ($160,000 or more for married couples filing jointly). That means some individuals couldn’t claim the 2021 RRC even if they received a 2020 stimulus payment. (These EIPs were in addition to payments mailed out in 2020 as part of the CARES Act.)
The payments were advance payments of the 2021 RRC claimed on a 2021 tax return. That means that payments landed in mailboxes and bank accounts in advance of the 2021 tax filing season. The IRS began issuing the third round of EIPs in March 2021 and continued through December 2021.
Taxpayers who did not receive the payments in 2021 (or only received a small payment) could claim the Recovery Rebate Credit on their 2021 federal income tax returns when they filed in 2022.
Why Are We Hearing About It Now?
After reviewing internal data, the IRS determined that many eligible taxpayers filed a return but did not claim the credit. Qualified taxpayers are those who filed a 2021 tax return, but left the RRC field blank or filled out $0 when they were actually eligible for the credit.
(Initially, the IRS said it would not calculate the RRC for you or correct your entry if you enter $0 or leave the line blank for the credit.)
As a result of the review, the IRS will issue automatic payments to those taxpayers who filed a return and were eligible for the credit but did not claim it.
What Do You Need To Do?
You don’t need to do anything. Payments will go out automatically in December and should arrive by late January 2025. The payments will be automatically direct deposited or sent by paper check—eligible taxpayers will also receive a separate letter notifying them of the payment.
“The IRS continues to work hard to make improvements and help taxpayers,” said IRS Commissioner Danny Werfel. “These payments are an example of our commitment to go the extra mile for taxpayers. Looking at our internal data, we realized that one million taxpayers overlooked claiming this complex credit when they were actually eligible. To minimize headaches and get this money to eligible taxpayers, we’re making these payments automatic, meaning these people will not be required to go through the extensive process of filing an amended return to receive it.”
Am I Eligible If I Didn’t File A 2021 Tax Return?
Maybe. But, the IRS will not automatically send you a payment if you didn’t file a return. If you didn’t file a 2021 tax return and were eligible for the credit, you have until April 15, 2025, to file and claim the credit and any other refund you might be owed.
How Will I Receive My Payment?
The payment will be sent to the bank account listed on your 2023 tax return or to the address of record.
The IRS will send a letter to taxpayers receiving these 2021 RRC payments. If you have closed your bank account since filing your 2023 tax return, don’t worry—the bank will return the payment to the IRS and the refund will be reissued to the address of record.
Will I Have to Pay Federal Income Tax On The Payment?
The RRC is not taxable for federal purposes.
Will I Lose Federal Benefits If I Receive A Payment?
No. The RRC does not count as income when determining eligibility for federal benefits such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC).
Do I Need A Social Security Number (SSN)?
Generally, yes. You must have a valid SSN or claim a dependent with a valid SSN or Adoption Taxpayer Identification Number issued by the IRS to claim the credit.
If you file jointly with your spouse and only one individual has a valid SSN, you can claim up to $1,400 for the spouse with a valid SSN and up to $1,400 for each qualifying dependent claimed on the tax return.
If neither spouse has a valid SSN, you can claim only up to $1,400 for each qualifying dependent claimed on the tax return.
There’s an exception: If either spouse is an active member of the U.S. Armed Forces at any time during the taxable year, only one spouse needs to have a valid SSN for the couple to receive up to $2,800 for themselves, plus up to $1,400 for each qualifying dependent.
What Happens If I Haven’t Filed My 2021 Return Yet And Don’t Do Before The Filing Deadline?
You’ll lose your right to the payment. To claim any refund, you generally must file your tax return within three years from the date the return was due (including extensions if you requested the extension by the due date) to get that refund. This includes any 2021 Recovery Rebate Credit amount included in your refund.
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