Understanding the Recovery Rebate Credit for Tax Year 2021

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The information in this article was last updated on Sept. 1, 2021. This article relates to the tax laws enacted during the COVID-19 pandemic. These laws may have expired or reverted to their original state.

To help Americans facing financial hardship as a result of the COVID-19 pandemic, the US government and the IRS issued three separate Economic Impact Payments (EIP) to eligible individuals and their families.  

If your client received the third payment—delivered around March 27, 2021—the amount will be reported on their 2021 tax return. If a client was eligible but did not receive the third payment they were owed, you may need to claim the 2021 Recovery Rebate Credit for the correct amount. Here’s what you need to know about the Recovery Rebate Credit for returns filed in 2022. 

What is the 2021 Recovery Rebate Credit? 

The Recovery Rebate Credit for 2021 tax returns is a refundable tax credit. The amount of credit may vary from taxpayer to taxpayer, and it depends on an individual’s unique circumstances. 

To be eligible for the credit, your client must: 

  • Have met the eligibility requirements for the third stimulus check, AND  
  • Not received the third stimulus payment they were due, OR 
  • Received less than the amount they were owed 

What were the eligibility requirements for the third EIP? 

Generally, your client was eligible for the full amount of the third Economic Impact Payment if they met the following requirements. 

Their adjusted gross income (AGI) was not more than: 

  • $150,000 if married and filing a joint return (also for or are a qualifying widow or widower) 
  • $112,500 if filing as head of household, or 
  • $75,000 for any other filing status 

And they: 

  • were not a dependent of another taxpayer, AND 
  • are a U.S. citizen or U.S. resident alien (if married, their spouse must also be a citizen or resident alien) 

The IRS used the income and dependent information from 2020 tax returns for those who had already filed to determine eligibility for the third stimulus. For all others, they used information from 2019 returns.