As COVID-19 continued into 2021, so did Congressional creation of relief payments. A third round of coronavirus-related cash started going out in late last March.
This most recent economic impact payment (EIP) shared a lot of similarities with the two earlier versions.
- It was an advance tax credit.
- It was distributed by the Internal Revenue Service.
- The amount delivered was based on prior-year information in the IRS database.
- Some eligible individuals didn't get the maximum available (or any) of the third EIP amount.
That last bullet point about missing EIP money produces one more similarly.
Folks who didn't get the maximum $1,400 per person EIP authorized by the American Rescue Plan Act need to look into claiming what they're due it when they file their 2021 tax return this year.
Advanced credit: All the economic impact payments technically are the Recovery Rebate Credit, or RRC.
This credit was created to provide relief to individuals who had to deal with financial problems created by the coronavirus pandemic. That's why the credit sometimes is referred to as a stimulus payment.
Lawmakers also wanted taxpayers to get as much of that money they could as soon as they could. So rather than make individuals wait months for the tax filing season to claim the credit, the various COVID bills instructed the IRS to distribute EIPs early.
However, in all three advance payment instances, some people didn't get all or any of the credit to which they were entitled. Now they can get that missing money by claiming the Recovery Rebate Credit on their 2021 tax returns.
Why you didn't get a check: But before we look at the credit claiming process, here's a quick review of why you didn't get any or as much money as you expected.
Even though the third EIP created in 2021 applies to that year's taxes, the IRS used prior filing data in its system, specifically 2020 or 2019 returns, to calculate how much to send taxpayers.
The agency tried to get those for whom it had no info, or whose data was dramatically outdated, to update their information using the online Child Tax Credit portal.
Some did, but not all. So, the IRS used what info it had to send out the third EIP.
In some cases, the old taxpayer data indicated that the individuals made too much money to get the full $1,400 amount. If your actual 2021 adjusted gross income was lower than in prior years, then you can claim the RRC amount you didn't get last year on the return you file now.
Also, if you had a child last year and didn't update the IRS on your larger family status, you're likely eligible for additional credit. That dependent youngster also is eligible for another $1,400.
Added benefit of the RRC: It's usually not a problem to get folks to claim any tax break for which they qualify. I suspect that will be the same this filing season, with lots of taxpayers filing earlier than usual just to get the any, all or the rest of the 2021 Recovery Rebate Credit.
They have good reason for the tax season enthusiasm.
As the name notes, the Recovery Rebate Credit is a tax credit. This type of tax break is a dollar-for-dollar offset of any tax you owe. So if your tax bill is $1,000 and you can claim the full $1,400 third EIP amount, you won't owe Uncle Sam a dime.
Even better, the RRC is the best kind of credit. It's refundable, meaning that if you qualify for more of the credit than tax you owe, the excess comes back to you as a refund.
In the $1,000 tax liability example above, you'll get a $400 tax refund.
Wait for your IRS letter: OK, you're ready to claim the Recovery Rebate Credit. You might want to slow your filing roll just a bit.
If you got any EIP amount last year, you need to know exactly how much before you claim the remainder as the RRC.
To help filers do this, the IRS is sending out Letter 6475. This document, technically an official IRS notice, will tell you the amount the tax agency's records show you received. That dollar amount received will be subtracted from the amount of the credit you're eligible for on your 2021 tax return.
The Form 1040 instructions has a worksheet. Most filers, however, likely will leave the adding and subtracting to their tax software or their tax preparer's software.
If you didn't get all of last year's economic impact payment, be sure you get all of the remainder for which you qualify.
And while getting a tax break is always nice, here's hoping that in 2022, COVID lets up enough for us to not need another round of economic impact payments.
You also might find these items of interest:
- When will you get your tax refund?
- 10 reasons to file a tax return even if you don't have to
- Don't let wrong IRS EIP or CTC letter info stop you from filing your taxes