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Updated IRS FAQs Explain How to Claim 2021 Recovery Rebate Credits
(Parker Tax Publishing February 2022)
The IRS updated the online frequently asked questions (FAQs) about the 2021 recovery rebate credit provided in Code Sec. 6428B. The updates address how individuals will be notified of the amount of the third economic impact payment and any plus-up payments they received, how to claim the 2021 recovery rebate credit on a 2021 tax return, and what to do if an individual received a check for the third economic payment but it was lost, stolen, or destroyed. FS-2022-09.
Background
The American Rescue Plan Act of 2021 (Pub. L. 117-2), enacted in early March 2021, provided economic impact payments of up to $1,400 for eligible individuals or $2,800 for married couples filing jointly, plus $1,400 for each qualifying dependent, such as older relatives like college students, adults with disabilities, parents, and grandparents. This third round of economic impact payments are authorized under Code Sec. 6428B and, unlike the 2020 recovery rebate credits and first two rounds of economic impact payments, require an additional "plus-up" payment, which is based on information (such as a recently filed 2020 tax return) that the IRS receives after making the initial payment to the eligible individual.
The 2021 recovery rebate credit amount begins to be reduced at the same income thresholds as the 2020 recovery rebate credits (i.e., $75,000 if filing as single or $150,000 if filing as married filing jointly). However, the 2021 recovery rebate credit amount is fully reduced to $0 more quickly. For example, individuals can't claim any credit with adjusted gross income of $80,000 or more if filing as single or $160,000 or more for if filing as married filing jointly. Due to these new income limitations, some individuals will not be eligible to claim the 2021 recovery rebate credit even if they received a 2020 stimulus payment.
The IRS sent out "plus-up payments" to individuals who (1) received a third-round economic impact payment based on a 2019 tax return or information received from the Social Security Administration, Railroad Retirement Board, or the Department of Veterans Affairs, and (2) filed a 2020 tax return which allowed a greater third-round economic impact payment (but only if the return was processed by December 1, 2021). For example, an individual may have received a plus-up payment if his or her income was less in 2020 compared to 2019, or he or she added a dependent on the 2020 return.
Observation: The IRS sent third-round economic impact payments and plus-up payments during March through December of 2021. Under Code Sec. 6428B(g)(3), the IRS was precluded from sending out economic impact payments after December 31, 2021.
On February 8, the IRS updated its frequently asked questions (FAQs) for the 2021 recovery rebate credit. The revisions include questions and answers regarding (1) whether the IRS will send notices confirming the amount of third-round economic impact payments an individual received; (2) how to claim the 2021 recovery rebate credit; and (3) how to receive a replacement for a third-round economic impact payment check that was lost, stolen, or destroyed.
Confirmation of Third Economic Impact Payment Amounts
Responding to the question of whether individuals will receive a letter or notice about the third-round economic impact payment, the IRS stated that yes, it has mailed Notice 1444-C, Your Third Economic Impact Payment, to individuals at the address it has on file for the individual. The IRS also noted that separate letters were sent to people who received a plus-up payment. In addition, the IRS said that through March 2022, it will send Letter 6475, Your 2021 Economic Impact Payment(s), to confirm the total amount of the third-round economic impact payment and any plus-up payments the individual received for tax year 2021.
Individuals Must File a 2021 Tax Return to Claim the Recovery Rebate Credit
In response to the question of how to claim the 2021 recovery rebate credit, the IRS clarified that an individual must file a 2021 tax return, even if the individual is otherwise not required to file a return. The individual's 2021 recovery rebate credit will either reduce any tax the individual owes for 2021 or be included in the individual's tax refund.
Practice Tip: The Recovery Rebate Credit Worksheet in the 2021 Form 1040 and Form 1040-SR instructions can also help determine if an individual is eligible for the credit.
The IRS noted that if an individual's income is $73,000 or less, the individual can file his or her federal tax return electronically for free through the IRS Free File Program. The IRS said that the fastest way to get a tax refund is to file electronically and have the refund directly deposited into a bank account, prepaid debit card, or mobile app.
Asked whether an individual can file a 2021 tax return in order to claim the 2021 recovery rebate credit even if the IRS hasn't finished processing the individual's 2020 tax return, the IRS responded yes, if the individual did not receive the full amount of the third-round economic impact payment and is eligible for the 2021 recovery rebate credit, the individual can file his or her 2021 tax return to claim the credit even if the individual's 2020 tax return hasn't finished processing.
Where to Find the Amount of the Third Economic Impact Payment
Responding to the question of where an individual can find the amount of his or her third-round economic impact payment, the IRS stated that the amount can be found (1) by checking the individual's online account, (2) in the Notice 1444-C which was mailed to the address the IRS has on file for the individual, or (3) in the Letter 6475, which the IRS will send through March 2022 confirming the total amount of the third economic impact payment and any plus-up payments. In addition, an individual can request his or her account transcript online, by calling the IRS's automated phone transcript service at 800-908-9946, or by submitting Form 4506-T, Request for Transcript of Tax Return.
Replacements for Lost Third-Round Economic Impact Payments
On the question of how to receive a new check for a third-round economic impact payment check that was lost, stolen, or destroyed, the IRS responded that the individual should contact the IRS to request a payment trace. The IRS provides detailed instructions for how to make such a request. The IRS said that if the check wasn't cashed, the IRS will credit the individual's account for that payment. However, the IRS noted that it cannot reissue the payment. Instead, the individual will need to claim the 2021 recovery rebate credit on his or her 2021 tax return. The IRS noted that if the individual does not request a trace on the payment, he or she may receive an error when claiming the 2021 recovery rebate credit on the 2021 tax return. If the check was cashed, the Treasury Department's Bureau of the Fiscal Service (BFS) will send the individual a claim package that includes a copy of the cashed check. The BFS will review the claim and the signature on the canceled check before determining whether the payment can be reversed, and the recovery rebate adjusted.
For a discussion of the 2021 recovery rebate credit, see Parker Tax ¶78,800.
Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.
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