Many clients have received letters from the IRS explaining that their federal tax refund has been adjusted due to the Recovery Rebate Credit (RRC) that was included on their 2020 tax returns.
The Recovery Rebate Credit is a tax credit for people who didn’t receive the full amount of stimulus for which they qualified. On the 2020 returns, we reported the amount each taxpayer received during the first two rounds of stimulus payments. Those who didn’t receive their full amount had a Recovery Rebate Credit for the difference. That credit is on Line 30 of the federal 1040.
Our experience this year has been that many of the returns with the RRC have taken longer to process than usual. Many clients have waited several months for their refunds. This is because the IRS is double-checking each return with that credit on it. They’re comparing their records with the amount of credit that has been claimed. In some cases, the credit claimed is correct and they issue the refund. In other cases, they find that the amount claimed doesn’t line up with the amount of stimulus the IRS records show was distributed. In those cases, they adjust the refund and [usually] send a letter. It’s not a particularly helpful or detailed letter, but it will tell you the amount of your adjusted refund and that it has to do with the RRC.
If you receive a letter or an adjusted refund without a letter, you should:
· Log into your IRS account (or set one up if you haven’t yet);
· Check the stimulus amounts – they’ll be labeled EIP1 and EIP2; then
· Check your bank statements to confirm that you received the payments or that you didn’t receive what the IRS records show was sent;
· If you did receive the payments, then your adjusted refund is probably correct. If you’re not sure, we’ll be happy to look over your IRS letter and do the math;
· If you didn’t receive a payment that the IRS has on record, you need to file a Form 3911 that will request that they trace the missing payment. Once they trace it and find that it wasn’t received, they will reissue the payment.
Things to keep in mind as you go through this process:
· Your EIPs may have been directly deposited into your bank account OR they may have been sent as checks OR as debit cards; so check your bank statements for deposits you may have made as well as direct deposits from the IRS.
· Direct deposits of the 2nd and 3rd round of payments will be labeled EIP2 and EIP3, but the 1st round payments may be labeled “TAX REFUND,” even though they’re not tax refunds.
· If you find a direct deposit from the IRS (or US Treasury) in Spring 2020 that is labeled “TAX REFUND,” you should double-check that it isn’t actually the refund from your 2019 federal tax return.
· Some married couples received joint payments and some received separate payments; but
· Whether the payments were joint or separate, they will be reported separately on the IRS website, so each spouse will need to set up and check their IRS account.