Recovery Rebate Credit Calculation FAQs
In this article we go over the calculation steps and use examples to explain how the RRC works from the new set of FAQs on the recovery rebate credit (RRC) now available on IRS’s website.
A comprehensive set of FAQs on the recovery rebate credit (RRC) is available on IRS’s website. The FAQs cover credit eligibility, calculating and claiming the credit, and more.
Eligibility for the recovery rebate credit
Eligibility for the RRC is essentially the same as eligibility for the two EIPs except that RRC eligibility is based on 2020, rather than 2019 or 2018, information.
An eligible individual in 2020:
- Was a U.S. citizen or U.S. resident alien
- Had an SSN valid for employment
- May not be claimed as a dependent of another taxpayer
If an individual meets these criteria in 2020 and didn’t receive EIPs or EIPs were less than the full amount for any reason, the individual may now be due an RRC.
2020 circumstances vs. 2019 or 2018
Here are some possible situations in which 2020 circumstances are different from 2019 or 2018 (the years on which the EIPs were based) and the individual could qualify for the RRC.
- Income decreased in 2020.
- An individual’s AGI in 2018 or 2019 resulted in EIPs that were reduced or eliminated and 2020 AGI would result in an RRC. See below for an example.
- Family size changed.
- A qualifying child was born or adopted in 2020. Or, a divorced parent or other adult is permitted to claim a qualifying child in 2020 but not in prior years.
- Dependent status changed.
- An individual, such as a college student, was claimed as a dependent before 2020 and is not a dependent in 2020.
- SSN received.
- An individual had an ITIN in 2019 and receives an SSN valid for employment before the due date of filing the 2020 return, including extensions.
The FAQs also clarify several eligibility factors. An individual who died in 2020 or in 2021 before filing the return is eligible for the RRC. See the FAQs for how to go about claiming the RRC for the deceased individual.
Individuals who died before 2020, and bona fide residents of U.S. territories are not eligible for the RRC. (Residents of territories receive RRCs through their territorial governments.)
Recovery rebate credit calculation
Taxpayers may use tax software or complete the Recovery Rebate Credit worksheet in the Form 1040 instructions.
The calculation begins by verifying credit eligibility and EIPs received. The IRS sent Letter 1444 to those who received the first round of EIPs (EIP1) and sent Letter 1444B to the second round of recipients (EIP2). Individuals may also check their online IRS accounts to get the amounts (see TAX in the News February 10, 2021).
Individuals who already received the maximum amount for both EIP1 and EIP2 based on their 2020 information are not due an RRC.
How much is the recovery rebate credit?
The credit amounts are figured in two parts or segments, corresponding to the two EIPs.
- Corresponding to EIP1, the maximum RRC amount is $1,200 ($2,400 MFJ) plus $500 for each qualifying child under 17
- Corresponding to EIP2, the maximum RRC amount is $600 ($1,200 MFJ) plus $600 for each qualifying child under 17.
Individuals who did not receive their maximum EIPs may be due an RRC. After figuring the maximum credit amounts before any income reductions, the calculation continues by reducing the credit amounts based on AGI limitations.
- The reduction is 5% of AGI over the applicable threshold:
- $75,000 for single and MFS,
- $112,500 for head of household, and
- $150,000 for MFJ and qualifying widow(er).
- The RRC reduction is based on 2020, rather than 2018 or 2019 AGI, and is applied separately to each credit amount.
Finally, the credit amounts after any reductions are compared to EIP1 and EIP2. The difference (i.e. the credit amounts that exceed the EIPs) is payable as an RRC.
Example 1: Lonnie is a head of household filer with one qualifying child under age 17. She received $1,700 ($1,200 + $500) for EIP1 and $1,200 ($600 + $600) for EIP2. There are no changes to her family size, filing status, etc. in 2020.
Lonnie is not due an RRC because she already received her maximum possible amounts.
Example 2: Joint filers Harry and Sylvia received $2,400 for EIP1 and $1,200 for EIP2. In June of 2020 the couple had a baby. Their 2020 AGI is $80,000.
They will figure their RRC as follows:
Step 1 – credit amounts. Their credit amounts before income reductions are equal to $2,900 ($2,400 + $500) and $1,800 ($1,200 + $600), corresponding to EIP1 and EIP2. Since their EIPs were less than these amounts, they continue with the calculation.
Step 2 – income reductions. The couple’s AGI of $80,000 is less than the phaseout threshold of $150,000 for joint filers, so there are no income reductions.
Step 3 – comparison. Harry and Sylvia are due additional credit amounts of $500 ($2,900 – $2,400 EIP1) and $600 ($1,800 – $1,200 EIP2) for a total RRC of $1,100.
Example 3: Sal is a single filer who had AGI of $95,000 in 2019. For EIP1, the reduction amount is $1,000 [($95,000 – $75,000) × 5%]. He received $200 for EIP1 ($1,200 – $1,000). He did not receive anything for EIP2 as $600 is less than the $1,000 reduction. Sal’s 2020 AGI is $78,000.
He will figure his RRC as follows:
Step 1 – credit amounts. Sal’s credit amounts before reductions are $1,200 and $600 corresponding to the two EIPs. At this point Sal may not know if he’s eligible for the RRC but he clearly received less than these amounts, so he continues with the calculation.
Step 2 – income reductions. The 2020 income reduction is $150 [($78,000 – $75,000) × 5%]. The two credit amounts are separately reduced to $1,050 ($1,200 – $150) and $450 ($600 – $150).
Step 3 – comparison. Sal is due additional credit amounts of $850 ($1,050 – $200 EIP1) and $450 ($450 – $0 EIP2) for a total RRC of $1,300.
Claiming the recovery rebate credit
The FAQs stress that individuals must file a 2020 tax return in order to receive the RRC, which is claimed on line 30 of Form 1040 or 1040-SR. See TAX in the News February 3, 2021 for information on how non-filers claim the RRC.
Harry and Sylvia as well as Sal will claim their RRCs on line 30. The RRCs will increase their refunds or decrease their balances due.
Also, unlike EIPs, RRCs may be used to offset back taxes and other debts.
EIPs are included in the calculation in order to determine any RRC due. Otherwise, EIPs are not included in taxable income. Individuals such as Lonnie in Example 1 do not have to complete the worksheet or report EIP information anywhere if they already received their maximum and are not due any RRC.