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 2020 Tax Return if you are entitled to them by law.
Recovery Rebate Credit
The eFile tax app will ask you to enter the amount of stimulus or economic impact payment you received. Note: If you did not receive a payment, enter the number zero (0) on the screen for both payments.
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 or 2019 - note that the third is based on the 2019 or 2020, if available. 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 2020 Recovery Rebate Credit based via your 2020 tax return. In 2022, we will also calculate your due 2021 Recovery Rebate Credit.
Keep in mind the stimulus or economic impact payment is not taxable income on your 2020 tax return and you are not required to pay back any of the EIP received during 2020.
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 1: you claimed you received the first payment of $1200 but not the second payment of $600. You filed your return including the missing $600, but then received the payment. The IRS will adjust this and issue a notice explaining the change - there may be a slight delay issuing the refund.
Example 2: you filed a return claiming you did not receive either 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 is also an advance payment of the Recovery Rebate Credit, but this one is an advance payment of the 2021 credit while the first two were advance payments of the 2020 credit. This means that, as of now, if you do not receive your third stimulus check, you will have to claim it on your 2021 Tax Return in 2022. Get your 2020 return filed as soon as possible so the IRS will have your information on record and will be able to issue this payment so you do not have to wait.
Sign up for an eFile.com account and submit your 2020 return. The IRS has issued the third payment based on your most recent tax return. Next year, return to your eFile account so you can claim the third payment if you do not receive the full amount this year.
Amounts and Phaseouts for the Credit
Attention: The phaseout limits on the third EIP have changed - see our third stimulus page for the figures on this.
The payment amount phases out at a rate of 5% for 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 2021 via your 2020 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 2018 or 2019 return, there was no need to register - and did not get the EIP in 2020.
- You received only a partial Economic Impact Payment of the maximum amount or credit of $1,200, or $2,400 plus $500 for each qualifying child.
- If you experienced life changing events in 2020, you might be eligible now for the EIP based on your 2020 Tax Return.
You do not have to worry about any of this as when you prepare and e-File your 2020 Tax Return via Form 1040 or 1040SR; the eFile.com tax app will determine whether you qualify or should receive this tax credit or not.
- 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 2020 Taxes, the difference gets added to your tax refund.
- I made more money in 2020 than 2019, will I have to pay back the stimulus payment? If your income increased in 2020 compared with 2018 or 2019, 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 2019 to $95,000 in 2020. In this case, going by the 2019 AGI, the stimulus payment check was $950. However, based on the 2020 AGI, this single taxpayer will qualify for a $200 recovery rebate on the 2020 Tax Return. The taxpayer does not have have to pay back the $750 difference.
Make sure you keep and save the letter from the IRS with your 2020 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.
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. Eligible employers are those who paid qualified sick leave wages and/or qualified family leave wages to one or more employees between April 1, 2020 and December 31, 2020. You should bring this to the attention or discuss the Employee Retention Credit with your employer as it might contribute to securing your employment.
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.
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 2020 Tax Return prepared.
TurboTax® is a registered trademark of Intuit, Inc.
H&R Block® is a registered trademark of HRB Innovations, Inc.