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IRS sends letters to explain why some 2020 Recovery Rebate Credits are different than expected

Common reasons are mistakes on math, ages of qualifying children, and no Social Security number being given

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Are you thinking about claiming the 2020 Recovery Rebate Credit on your federal tax return this year? If you already have, the Internal Revenue Service wants you to know that you might be getting a different amount than originally expected.

The sticky wicket that most taxpayers don’t know about is that the first and second Economic Impact Payments were actually advance payments of the 2020 credit. The IRS says that people who have already received the first and second payments shouldn't or don't need to include this information on their 2020 tax return -- the one due May 17.

However, U.S. citizens who didn't receive a first or second EIP -- or received less than the full amounts -- may be eligible for the 2020 RRC. If that is you, then you must file a 2020 tax return to claim the credit, even if you don't usually file a tax return.

The Recovery Rebate Credit process

The IRS probably didn’t count on this can of worms, but it wants to make sure it explains the RRC process to those who want to take advantage of it. Just about everything you need to know rests on line 30 of your 2020 Form 1040 or 1040-SR. On that line, you need to list the difference between what you are owed and what you received.

For those who claim the credit on their 2020 return, the IRS takes the return and looks at the amount of the taxpayer's credit based on the 2020 tax return information and the amounts of any EIP previously issued. Then, if a taxpayer is eligible, it will be reduced by the amount of any EIPs already issued to them.

However, if the IRS finds a mistake with the credit amount on Line 30 of the 1040 or 1040-SR, the agency will calculate the correct amount, make the necessary correction, and continue processing the return. If a correction is necessary, then that’s where the letter from the IRS comes in -- one they send to the taxpayer explaining any change. The IRS notes that there may be a slight delay in processing the return because of the extra work.

If you haven’t filed your 2020 tax return yet, the agency says the simplest way to calculate any credit due is to start with the amount of any EIPs received. Consumers can then use the RRC Worksheet that came in the 2020 filing instructions.

Reasons why the IRS will correct credit 

There are several reasons why the IRS might correct a Recovery Rebate Credit, but it says these are the most common:

  • 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 January 1, 2020.

  • Math errors relating to calculating adjusted gross income and any EIPs already received.

If you get a letter from the IRS

Taxpayers who receive a letter from the IRS saying that it changed the amount of their 2020 credit should read the notice that comes with the letter. At that point, the IRS asks that they review their 2020 tax return, the requirements, and the worksheet in the Form 1040 and Form 1040-SR instructions.

If a taxpayer doesn’t agree with the IRS’ calculation, they have the right to ask the agency for clarification. The only thing the IRS asks is that the taxpayer have the information that the letter requests handy before they contact an agency official.

The IRS has put together a special guide called “Correcting Recovery Rebate Credit issues after the 2020 tax return is filed” to help taxpayers gain a better understanding of what errors may have occurred. That guide is available online here.

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