Navigating Stimulus Payments and the Recovery Rebate Credit
Determining The Economic Impact Payments Received
With many taxpayers receiving both economic impact payments starting in April 2020 and then again in December 2020, taxpayers and practitioners are understandably confused about whether they’re entitled to the Recovery Rebate Credit on the 2020 Form 1040, line 30.
In order to determine whether a taxpayer is eligible for the Recovery Rebate Credit, taxpayers and practitioners must know the amount of economic impact payments received in/around April 2020 and again beginning in January 2021.
If the client retained IRS Notice 1444 for the first economic impact payment and Notice 1444-B for the second, they would show the amounts received, making this very simple. However, since most taxpayers did not retain these notices, practitioners must use some other method to determine the amounts received.
These other methods could be asking the client to look for the amount of direct deposits or checks deposited or the practitioner can compute the amount of the economic impact payment that the IRS should have sent based on the client’s prior year return.
The IRS has also indicated that taxpayers who create an individual online account can now view the amount of economic impact payments sent to them by the IRS. This online account can be created by the taxpayer, not by the tax preparer. It should take about 15 minutes to create an account due to the identity verification required. To find out more about setting up an account you can go to https://www.irs.gov/payments/view-your-tax-account
Note: The IRS has indicated in its frequently asked questions that it will not compute the recovery rebate credit for taxpayers who do not put anything on line 30 of Form 1040, but it will correct this credit if it is computed incorrectly. The IRS frequently asked questions are available at: https://www.irs.gov/coronavirus/economic-impact-payment-information-center
Source: M + O = CPE