Recovery Rebate, Employee Retention Credit
Christina at Unsplash@wocintechchat.com
As a result of the Coronavirus or COVID-19 crisis of 2020, the following taxpayer and employer/employee credits have been established. Claim these credits on your 2021 Tax Return if you are entitled to them by law.
See below: Employee Retention Credit.
Recovery Rebate Credit
The Recovery Rebate Credit or RRC was introduced by the federal government in 2020 due to the Coronavirus Pandemic. This program was more commonly known as the stimulus checks or payments. These payments are the same thing: the stimulus checks were advance payments of the Recovery Rebate Credit.
When preparing your 2021 Taxes, the eFile Tax App will ask you to enter the amount of the Stimulus 3 or Economic Impact Payment (EIP) you received. Note: If you did not receive a payment, enter the number zero (0) on this payment.
You may have received the first and/or second Economic Impact Payments (EIP), or COVID-19 related stimulus payments. These were dependent on your tax return filing status and adjusted gross income (AGI) and came in the amounts of:
These payments were based on your most recently available tax return, 2018, 2019, or 2020. In addition, $500 was paid for each qualifying child for the first EIP, $600 for the second, and $1,400 for the third. Based your information, file a return on eFile.com and the eFile Tax App will calculate whether you might be eligible for the 2021 Recovery Rebate Credit based via your 2021 Tax Return.
Keep in mind the stimulus or economic impact payment is not taxable income on your 2020 or 2021 Tax Return and you are not required to pay back any of the EIP received during 2020 or 2021 if you were in fact eligible for it.
Important: The IRS has confirmed that taxpayers who entered incorrect figures for the Recovery Rebate Credit will have their refund adjusted and do not have to do anything. However, they need to have claimed something - if you did not claim anything, but were owed, you would have to file a tax amendment to claim your missing payment. If you filed for the stimulus but received it after, you do not have to fix anything.
Example: You filed a return claiming you did not receive the third stimulus payment, but you, in fact, did. The IRS will change this and will issue a notice of the adjustment and may slightly delay your refund.
How to Claim the 2021 Recovery Rebate Credit
The third Economic Impact Payment is similar to the first and second payments. It was also an advance payment of the Recovery Rebate Credit, but this one was an advance payment of the 2021 credit while the first two were advance payments of the 2020 credit. This means that if you do not receive your third stimulus check, you will have to claim it on your 2021 Tax Return in 2022 as the IRS is no longer issuing these advance payments. Sign up for an eFile.com account and submit your 2021 return now to claim your RRC.
Amounts and Phaseouts for the Credit
Attention: The phaseout limits on the third EIP changed from the first and second payments - the three payments phase out at the same income points, but the third phases out at a faster rate than the first two. See our third stimulus page for more details on this.
The payment amount phases out at the following AGI amounts: $75,000 for single filers, $112,500 for head of household, and $150,000 for married filing jointly.
On the other hand, if you did miss the online Economic Impact Payment - EIP - payment registration deadline, you may still be eligible to receive the EIP in 2022 via your 2021 Tax Return if you qualify and one the following applies to you:
- You did not register online or by mail for the EIP - if you filed a 2019 or 2020 return, there was no need to register - and did not get the EIP in 2021.
- You received only a partial Economic Impact Payment of the maximum amount or credit of $1,400, or $2,800 plus $1,400 for each qualifying child.
- If you experienced life changing events in 2021, you might be eligible now - for example, if you added a dependent in 2021, you may be entitled to a higher credit.
You do not have to worry about any of this as when you prepare and e-File your 2021 Tax Return via Form 1040 or 1040-SR; the eFile.com tax app will determine whether you qualify or should receive this tax credit or not based on your entries.
- Will I receive payment if I don't owe any tax? If you do qualify for the Recovery Rebate refundable tax credit and if the amount of the tax credit is greater than what might you owe in 2021 Taxes, the difference gets added to your tax refund.
- I made more money in 2021 than 2020, will I have to pay back the stimulus payment? If your income increased in 2021 compared with 2020, you still won’t be required to pay back the stimulus money you previously received.
- Case Study: Let's say a single person had an AGI increase from $80,000 in 2020 to $95,000 in 2021. In this case, going by the 2020 AGI, the stimulus payment check was received, but in a reduced amount - around $950. However, based on the 2020 AGI, this single taxpayer will qualify for a further reduced Recovery Rebate on the 2021 Tax Return - around $200. The taxpayer does not have to pay back the difference - in this example, $750.
Make sure you keep and save the letter from the IRS with your 2021 Tax Return records. You will need the Economic Impact Payment amount you received as stated in the letter from the IRS Notice 1444, Your Economic Impact Payment. Stimulus 3 was reported on IRS Letter 1444-C.
How to Claim 2020 Recovery Rebate Credit
To claim a missing stimulus payment for stimulus 1 or 2, or the 2020 Recovery Rebate Credit, file 2020 Taxes and include this on Line 30 of the Form 1040. 2020 Tax Returns can no longer be e-filed; use the link to prepare the forms manually. You can use fill them in online before signing, printing, and mailing them to the 2020 IRS mailing address.
Stimulus 1 and 2 are not reported or entered on a 2021 Tax Return. When you prepare and e-file your 2021 Taxes, do not include the amounts you received or believe you are owed from the 2020 RRC.
Request a payment trace if you have confirmed via your IRS account that you were issued stimulus 1 or 2, but never received it. See how to request this in item C in the table on the stimulus check page.
See back taxes for more resources.
Employee Retention Credit
These employer tax credits are available for eligible employers: paid sick leave credits and paid family leave credit. They can be claimed for fewer than 500 employees. For 2021, eligible employers are those who paid qualified sick leave wages and/or qualified family leave wages to one or more employees between January 1, 2021, and December 31, 2021. You should bring this to the attention or discuss the Employee Retention Credit or ERC with your employer as it might contribute to securing your employment.
For 2020 Returns, this credit applied to these dates: April 1, 2020 - December 31, 2020.
Additionally, employers may receive credit on wages paid for leave for employees who use this time to schedule and receive COVID-19 vaccinations as well as to recover from taking the vaccine. These credits are for wages paid from April 1, 2021, to September 30, 2021. Additionally, your employer may be able to claim credit for wages paid to employees staying home to accompany or care for a family or household member obtaining or recovering from the COVID-19 vaccination. The credit may also apply if an employee stays home to care for a household member or someone the employee holds a close relationship with due to COVID-19.
The tables below summarize the tax credits discussed on this page in more detail. Information is organized by the credit name, who it applies to (employee/employer), and how one qualifies to claim it.
Family Leave Credit
An employee received paid leave to take care of a child because the child care provider could not work due to COVID-19.
The employee took paid leave to take care of a child due to a school or care place closing due to COVID-19.
The paid family leave credit is equal to two-thirds of the employee’s regular rate of pay, capped at $200 per day or $10,000 in total.
Up to 10 weeks of qualifying leave is able to be counted toward the Family Leave Credit.
If combined with the sick leave credit listed below, an employer might be entitled to a credit to pay for up to 12 weeks: 2 weeks of sick leave and 10 weeks of family leave.
The qualified employer may be eligible to claim credits for qualified health plan expenses that are for the employee and employer's portion of tax on Medicare related to the qualified wages.
Sick Leave Credit - Individual
An employee received paid sick leave due to quarantine, self-quarantine, or isolation order due to COVID-19.
The employee took paid sick leave to seek medical assistance due to COVID-19 symptoms.
The employee retention credit is paid at the employee’s regular rate of pay, with a maximum limit of $511 per day and $5,110 in total, on up to 80 hours. The employer might also be eligible to claim credits for qualified health plan expenses for the employee as well as the employer’s portion of Medicare tax expenses that are related to qualified wages.
Sick Leave Credit - Qualified Person
An employee received paid sick leave in order to take care of another person due to quarantine, self-quarantine, or isolation order due to COVID-19.
The employee took paid sick leave to take care of a child due to COVID-19 related school or care center closures.
An employee took paid sick leave to take care of a child due to a childcare provider being unavailable due to COVID-19.
The employer tax credit can be claimed for two-thirds of the employee’s regular rate of pay, limited to $200 per day and $2,000 in total, up to 80 hours. The employer may also be eligible for tax credits for qualified health plan expenses for the employee as well as the employer’s portion of Medicare tax related to the qualified wages.
Help with the Pandemic and Taxes
The COVID-19 Pandemic has sent many taxpayers into financial hardship. Find resources below to get your 2021 Tax Return prepared.
TurboTax® is a registered trademark of Intuit, Inc.
H&R Block® is a registered trademark of HRB Innovations, Inc.