The Internal Revenue Service (IRS) is making an unusual move by sending out stimulus payments to approximately 1 million taxpayers who missed claiming a significant credit on their 2021 tax returns. These individuals either overlooked or incorrectly claimed the recovery rebate credit, which was part of the third round of economic impact payments aimed at bolstering the economy during the pandemic. The IRS has initiated automatic payments, ensuring eligible recipients receive this money without needing to file an amended return. While most payments are expected to arrive by late January, some taxpayers may already find the funds in their accounts.
Eligibility and Distribution Details
This special payment program targets those who filed a 2021 tax return but did not claim the recovery rebate credit they were entitled to. The IRS reviewed its internal data and identified these taxpayers, initiating automatic payments to correct the oversight. The agency is distributing around $2.4 billion, with an average payment of $2,400 per recipient. Eligible individuals do not need to take any action to receive this money, as it will be sent directly to their bank account or mailing address on file.
The recovery rebate credit was designed to provide up to $1,400 per person, with additional amounts for qualifying dependents. For a married couple filing jointly with two dependents, the maximum credit could reach $5,600. However, the actual amount received depends on income levels, with higher earners seeing reduced benefits. Singles earning over $80,000 and couples earning more than $160,000 were ineligible for the credit. The IRS is also alerting recipients via letters, informing them that the money is on the way. If a bank account has been closed, the IRS will reissue the payment to the taxpayer's address of record.
Understanding the Recovery Rebate Credit
The recovery rebate credit was the final installment of stimulus payments issued following the onset of the COVID-19 pandemic. Initially, many people received advance payments based on their 2019 or 2020 tax information. Those who missed out on these advance payments or did not receive the full amount they qualified for could claim the credit on their 2021 tax returns. However, due to complex eligibility rules and income limits, some taxpayers inadvertently overlooked this opportunity. The IRS's proactive approach aims to rectify this situation and ensure eligible individuals receive their rightful payments.
The rules surrounding the recovery rebate credit were intricate, leading to confusion among taxpayers. For instance, parents of newborns in 2021 and college graduates who became independent filers that year might qualify for the credit. Additionally, those whose income dropped significantly in 2021 compared to previous years could still be eligible. Despite the complexity, the IRS emphasizes that no one needs to repay previously received payments if their income increased in 2021, ensuring the reconciliation process favors taxpayers. This initiative underscores the IRS's commitment to assisting eligible taxpayers and addressing past oversights.