What Is Recovery Rebate Credit In US? Here's All The Details

New Delhi: In 2020 when COVID-19 engulfed the whole world and causing major losses to each countries apart from destroying world's best health infrastructure, to deal with the pandemic, each countries were tightening their belts and coming out with several plans. However, these plans were effective but failed to provide a major relief.

One of these plans was Recovery Rebate Credit which United States (US) introduced to give cash-aid or financial support to its citizens.

What Is Recovery Rebate Credit?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of the country, authorized the Recovery Rebate Credit through which advance payments were made to most eligible citizens in the form an Economic Impact Payment in 2020. According to a clause in the Recovery Rebate, Credit, if anyone who hasn't receives the amount which he/she was entitled, can claim it as a refundable credit when he/she files their 2020 taxes in 2021.

The Recovery Rebate Credit helps one to lower their taxes (or receive a credit) for one's full economic impact, if one's didn't receive it in 2020. In addition to this, if one is eligible for a credit and don't owe taxes this year so in that case one's credit will provide a tax refund.

Simplifying Recovery Rebate Credit

As we know, the CARES Act provided Economic Relief Payments which is known as Economic Impact Payments or stimulus payments which were of $1.200 per eligible adult based on household Adjusted Gross Income (AGI) plus $500 for each additional qualifying dependent less than 17 years of age.

Eligibility of getting these payments in 2020 was based on one's 2019 and 2018 tax filings.

For example, if one's fail to receive payment or the full amount due, because his/her income could have been too high and his/her lower income in 2020 would have qualified them -- or because of a change in the number of dependent in 2020 compared to 2019 -- he/she could claim the amount due as a refundable tax credit in their 2020 form 1040 or 1040-SR filed in 2021. Both these forms include Recovery Rebate Credit.

After receiving a Recovery Rebate Credit, one's amount of taxes refund will be increased or it will decreased the amount of taxes that he/she owed.

Eligibility of Recovery Rebate Credit

Before claiming the Recovery Rebate Credit one needs to introspect if he/she qualifies for it or not. If one has received $1,200 stimulus payment ($2,400 if married filing jointly) and in other case if any family has also received $500 for each qualifying dependent child under 17, then in that case one is likely do not qualify for a Recovery Rebate Credit.

However, talking about the eligibility, one needs to be a citizen or resident of US alien in 2020, He/she shouldn't have been a dependent of another taxpayer for tax year 2020, He/she should have a social security number issued before the due date of one's 2020 tax return.

If one is eligible for the same, then in that case one may qualify for a full or partial Recovery Rebate Credit on one's 2020 return in certain scenarios.

-- He/she was eligible for payment but didn't receive one

-- He/she didn't receive the full amount to which one was entitled for.

-- One's 2020 income makes him eligible for a rebate.

-- He/ She had a child in 2020 after they received their stimulus payment.

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