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IRS Updates 2021 RRC FAQs

The Internal Revenue Service is continuing in its effort to give taxpayers the very latest information right up to the end of tax season, by updating its frequently asked questions (FAQs) for the 2021 Rebate Recovery Credit a second time this year.

The updated portions are spelled out in Fact Sheet FS-2022-27 on the IRS website. The updated material concentrates on Topic F: Receiving the Credit on a 2021 Tax Return.

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RRC could be a door to EIP

Those individuals who either failed to get the full amount third Economic Impact Payment (EIP) also termed a “stimulus payment,”—or failed to qualify for the EIP—may still be able to claim the Recovery Rebate Credit on their 2021 income tax return.

The third Economic Impact Payment was, in fact, an advance payment of the Rebate Recovery Credit, and should not be confused with the advance payments of the Child Tax Credit that went out monthly from July through December in 2021.

Those people who are missing a stimulus payment need to go online to the IRS website and visit the Recovery Rebate Credit webpage to see if they are eligible for a payment and whether they need to claim the Recovery Rebate Credit for the 2021 tax year.

Whether a taxpayer missed out on the entire third Economic Impact Payment, or just didn’t get all the money they were due, the only way to get an adjustment is by filing a 2021 tax return that claims the Recovery Rebate Credit.

The same procedure holds for those missing one of the 2020 EIPs—taxpayers have to file a 2020 return—sending an amended return if they’ve already filed for 2020.

The 2021 Recovery Rebate Credit is a refundable credit, meaning once the credit reduces the filer’s tax liability to $0, any remaining credit amount can be refunded to the filer.

However, filers claiming the RRC should take care to avoid a common pitfall. When claiming the 2021 Recovery Rebate Credit, filers should take care not to mix information from their 2020 and 2021 tax years.

In other words, filers claiming the 2021 RRC should NOT include information from the first and second Economic Impact Payments in 2020, or the 2020 Recovery Rebate Credit, on their 2021 return.

These filers will have to accurately figure the total of their third payment that they received accurately, so they can correctly calculate the 2021 Recovery Rebate Credit on their 2021 return.

The IRS sent a couple of letters that could help taxpayers with this chore. Letter 1444-C, sent out in 2021 after each stimulus payment, and Letter 6475, sent out this year, can each be used to determine the amount a taxpayer has received through EIPs.

Individuals can also log onto their IRS online account to see these amounts.

Sources: IR-2022-83; FS-2022-27

Story provided by TaxingSubjects.com