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What You Need To Know
About the Recovery Rebate Credit

Rocky Mengle, tax editor for Kiplinger's Personal Finance explains what is the Recovery Rebate Credit, and what does it have to do with the stimulus checks?

The Recovery Rebate Tax Credit and stimulus checks are joined at the hip. Both the first ($1,200) and second ($600) stimulus checks were simply advance payments of the credit.

So, if the combined total of your two stimulus checks is less than the recovery rebate credit amount, you may be able to get the difference back on your 2020 tax return in the form of a larger tax refund or a lower tax bill.

The eligibility rules for the recovery rebate credit are basically the same as they were for the first- and second-round stimulus checks. The big difference is that eligibility for the stimulus checks was typically based on information found on your 2019 tax return (or your 2018 return for first-round checks), while eligibility for the recovery rebate credit is based on information from your 2020 return.

As with the stimulus checks, calculating the amount of your recovery rebate credit starts with a “base” amount. For most people, the base amount is $1,800 – that’s the combined total of the first stimulus check base amount ($1,200) and the second stimulus check base amount ($600). For married couples filing a joint 2020 tax return, the base amount is $3,600, or twice the general base amount.

Then you add on $1,100 for each child age 16 or younger claimed as a dependent on your 2020 return. The $1,100 amount represents the combined total of the $500-per-child added on to first-round stimulus checks and the $600-per-child tacked on for second-round payments.

After adding up the base amount and any additional amount for your children, you then need to determine if your recovery rebate credit is reduced because of your income. Your credit will be reduced – possibly to zero – if you file as a single taxpayer and have an adjusted gross income (AGI) above $75,000 on your 2020 tax return. If you file a joint return with your spouse, your credit will start to shrink if your 2020 AGI is over $150,000. For every $20 you’re over the applicable threshold, your recovery rebate credit is reduced by $1.

Finally, after the credit is reduced, you need to subtract the total first- and second-round stimulus check payments you received from the credit amount. The IRS should have sent you a notice after it sent you a stimulus check – Notice 1444 for first-round payments and Notice 1444-B after second-round payments. You can find the proper amount to subtract on these notices.

You report the final amount on Line 30 of your 2020 federal income tax return. The recovery rebate credit is a “refundable” credit, which means you’ll get tax refund if the credit is larger than the tax that you would otherwise have to pay.

Editor’s Note: Rocky Mengle is tax editor at Kiplinger.com, www.kiplinger.com.

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