The IRS released a frequently asked questions (FAQ) fact sheet (FS-2022-04) on Thursday to help taxpayers and their tax preparers calculate the recovery refund credit for 2021 tax returns. .
The recovery refund credit for the 2021 tax year, as for 2020, must be deducted from any Economic Impact Payment (EIP) that a taxpayer (and/or spouse, if filing jointly) has received during the year. The 2021 EIP was the third such payment, which the IRS distributed from March to the end of the year. The previous two EIP cycles were in 2020 and are reconciled to a recovery rebate credit for that year’s tax return. Individuals eligible for the EAP or Recovery Rebate Credit who did not receive an EAP can claim the full amount of the credit on their return.
In most cases, the 2021 EIP refund or recovery credit amount is $1,400 for each eligible person, or double that amount for married couples filing jointly when both spouses are eligible (a married couple who files jointly may both be eligible if one spouse had a valid Social Security (SSN) card and one spouse was an active member of the U.S. Armed Forces at any time during the year), and 1,400 $ for each eligible dependent claimed on the individual’s return. Taxpayers and dependents must have a valid SSN (except in the case of the armed forces exception) or, for dependents, an adoption tax ID.
The definition of eligible dependents for the 2021 EIP Refund/Recovery Credit includes all properly claimed dependents, such as students, parents, and other eligible family members, not just, as in 2020, those who were children under the age of 17.
The 2021 EIP refund/recovery credit has the same income phase-out thresholds as for 2020, $75,000 for single filers and $150,000 for married couples filing jointly. However, the phasing out cap is lower, $80,000 for singles and $160,000 for marrieds filed jointly. In 2020, the EIP refund/recovery credit was reduced by 5% of the amount by which the adjusted gross income (AGI) exceeded the applicable threshold, meaning that, for a single person, the maximum payment/credit of 1,200 $ was entirely waived at an AGI of $99,000 and for a married couple filing jointly at $198,000. Thus, the IRS points out (FAQ A1), some taxpayers who received a full or partial EIP refund/recovery credit in 2020 may receive less or none for 2021.
The IRS previously sent letter 1444-C, Your Third Economic Impact Payment, the declaration of EIP to taxpayers, the FAQ advises (FAQ A3). During this month, the IRS said it would also send letter 6475, Your 2021 Economic Impact Payment, confirming the total amount of EIPs. Taxpayers can also verify their PIEs by creating or accessing an account online using the IRS’ Get My Payment tool.
The FAQ also discusses (FAQ A2) what the IRS calls “plus-up” EIPs, additional payments sent in 2021 to taxpayers whose EIP was based on a 2019 return or information from other government sources. , where those taxpayers filed a 2020 return that authorized a higher EIP (if that return was processed before December 1, 2021). Recipients of enhanced payments received a separate 1444-C letter for them, but those payments are included in the 6475 letter, the service said.
Other issues under eight topics covered by the FAQ include:
- How taxpayers who are not required to file a 2021 tax return can claim the salvage refund credit (Topic B).
- FAQs on specific eligibility to claim the Salvage Rebate Credit (Topic C). These cover SSNs, such as where one spouse has an SSN and the other does not (FAQ C5). In addition, they discuss eligible children and eligible parents in detail (FAQ C7 and C8). FAQ C9 deals with the case where a person was claimed as a dependent on someone else’s 2020 return and did not receive a 2021 EAP but is not a dependent in 2021 (FAQ C9 person can claim a salvage rebate credit on their own return for 2021 if otherwise eligible).
- Incarcerated and deceased and individuals (FAQ C10 and C11; see also FAQ E6 and E7 for co-registrants with a deceased spouse in 2021).
- Residents of US territories (FAQ C13).
- If a taxpayer can file a 2021 return with a recapture refund credit although the IRS has not fully processed the taxpayer’s 2020 return (FAQ D2 indicates that the taxpayer can do so).
- Whether the IRS will calculate the credit or correct an erroneous credit (FAQ E2; see also Topic H, Correcting Issues After Filing the 2021 Tax Return).
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