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Some Taxpayers in for an RRC Surprise

Some taxpayers are getting a little something extra this tax season, along with claiming the 2020 Recovery Rebate Credit. The little extra is a letter from the Internal Revenue Service because some taxpayers may not be getting the amounts from the RRC they expected.

What is the Recovery Rebate Credit?

The Recovery Rebate Credit was introduced as part of the Coronavirus Aid, Relief, and Economic Security Act of 2020—legislation most taxpayers associate with Economic Impact Payments. What many might not know is that EIP1 and EIP2 were simply an advance of the 2020 Recovery Rebate Credit, and some taxpayers are still eligible to claim all or part of the credit on their tax year 2020 return.  

As with any tax credit, there are times when taxpayers expect more money than they are actually qualified to receive. That’s where those RRC letters come in.

“If there’s a mistake with the credit amount on Line 30 of the 1040 or 1040-SR [of the 2020 tax return], the IRS will calculate the correct amount, make the correction and continue processing the return,” the agency explains. “If a correction is needed, there may be a slight delay in processing the return and the IRS will send the taxpayer a letter or notice explaining any change.”

Taxpayers who get a letter or notice will likely see one of the following provided reasons for IRS correction:

  • The individual was claimed as a dependent on another person’s 2020 tax return.
  • The individual did not provide a Social Security number valid for employment.
  • The qualifying child was age 17 or older on Jan. 1, 2020.
  • Math errors relating to calculating adjusted gross income and any EIPs already received.

The IRS says that those who aren’t satisfied with the provided explanation should double check the following documents before picking up the phone:

  • The letter explaining the change
  • Their tax year 2020 return
  • The Form 1040 and Form 1040-SR instructions
  • “Correcting Recovery Rebate Credit issues after the 2020 tax return is filed” on IRS.gov

It goes without saying that RRC-eligible taxpayers who haven’t filed should check all of these resources prior to preparing their return.

Taxpayers who haven’t filed should do their homework—and consider hiring a tax pro

The first and most obvious step in claiming the RRC on a 2020 tax return is determining eligibility.

“To calculate any credit due, start with the amount of any EIPs received. Use the RRC Worksheet or tax preparation software,” the IRS says. “Taxpayers who didn’t save or didn’t receive an IRS letter or notice can securely access their individual tax information with an IRS online account.”

Next, taxpayers need to choose how they want to send their return to the IRS. Those who prefer getting their refund quickly should consider e-filing and direct deposit in a bank account, currently held prepaid debit card, or approved mobile application.

However, the IRS notes that taxpayers who choose a prepaid debit card need to “check with the financial institution to ensure the card can be used and to obtain the routing number and account number, which may be different from the card number.”

If all of that legwork sounds like a daunting task for a busy do-it-yourselfer, then a reputable tax professional can help sort it out. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications even includes a search tool to help taxpayers find a nearby preparer.

Visit the following IRS.gov pages to read more about Economic Impact Payments and the RRC:

Source: IRS letters explain why some 2020 Recovery Rebate Credits are different than expected

Story provided by TaxingSubjects.com

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