The IRS is sending checks to over a million taxpayers who missed out on stimulus payments

Does the IRS owe you money?

The IRS says over a million taxpayers may have missed the Recovery Rebate Credit (RRC) claimed on their 2021 tax returns. The agency is now taking steps to send them out. Although the amounts can vary, the maximum payment is $1,400 per person. The estimated amount of payouts will be around $2.4 billion.

Background

The American Rescue Plan Act of 2021, passed in early March 2021, provided economic impact payments (EIPs or stimulus payments) of up to $1,400 for eligible individuals or $2,800 for married couples filing jointly, plus $1,400 for each qualifying relatives, including adult relatives.

The credit amount was subject to a phase-out — the amount was reduced if your adjusted gross income was more than $75,000 (or $150,000 for married couples filing jointly). The RRC amount for 2021 was completely reduced to $0 for taxpayers with adjusted gross income of $80,000 or more ($160,000 or more for married couples filing jointly). This means that some individuals could not claim the 2021 RRC even if they received a 2020 stimulus payment. (These EIPs were in addition to payments sent out in 2020 as part of the CARES Act.)

The payments were prepayments from the 2021 RRC, which were claimed on a 2021 tax return. That means payments landed in mailboxes and bank accounts ahead of the 2021 tax filing season. The IRS began issuing the third round of EIPs in March 2021 and continued through December 2021.

Taxpayers who did not receive the payments in 2021 (or received only a small payment) could claim the recovery discount credit on their 2021 federal tax returns when they filed in 2022.

Why are we hearing about it now?

After reviewing internal data, the IRS determined that many eligible taxpayers filed a return but did not claim the credit. Eligible taxpayers are those who filed a 2021 tax return but left the RRC field blank or entered $0 when they were actually eligible for the credit.

(Originally, the IRS said it would not calculate the RRC for you or correct your entry if you enter $0 or leave the line blank for the credit.)

As a result of the review, the IRS will issue automatic payments to those taxpayers who filed a return and were eligible for the credit but did not claim it.

What should you do?

You don’t need to do anything. Payments will automatically disappear in December and should arrive by the end of January 2025. The payments will automatically be direct deposited or sent by paper check – eligible taxpayers will also receive a separate letter notifying them of the payment.

“The IRS continues to work hard to make improvements and help taxpayers,” said IRS Commissioner Danny Werfel. “These payments are an example of our commitment to going the extra mile for taxpayers. When we looked at our internal data, we realized that one million taxpayers overlooked claiming this complex credit when they were actually eligible. To minimize headaches and get that money to eligible taxpayers, we’re making those payments automatic, meaning those people won’t be required to go through the extensive process of filing an amended return to receive it.”

Am I eligible if I didn’t file a tax return for 2021?

Perhaps. But the IRS won’t automatically send you a payment if you haven’t filed a return. If you did not file a tax return for 2021 and were eligible for the credit, you have until 15 April 2025to file and claim the credit and any other refund you may be owed.

How do I receive my payment?

The payment is sent to the bank account listed on your 2023 tax return or to the registered address.

The IRS will send a letter to taxpayers receiving these 2021 RRC payments. If you’ve closed your bank account since you filed your 2023 tax return, don’t worry—the bank will return the payment to the IRS and the refund will be reissued to the address on file.

Do I have to pay federal income tax on the payment?

The RRC is not taxable for federal purposes.

Will I lose federal benefits if I receive a payment?

No. RRC does not count as income when determining eligibility for federal benefits, such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and the Special Supplemental Nutrition Program for Women, Infants, and Children ( WIC).

Do I need a Social Security Number (SSN)?

In general, yes. You must have a valid SSN or claim a dependent with a valid SSN or Adoption Taxpayer Identification Number issued by the IRS to claim the credit.

If you file with your spouse and only one person has a valid SSN, you can claim up to $1,400 for the spouse with a valid SSN and up to $1,400 for each qualifying dependent claimed on the tax return.

If neither spouse has a valid SSN, you can only claim up to $1,400 for each qualifying dependent claimed on the tax return.

There is one exception: If one spouse is an active-duty member of the U.S. Armed Forces at any time during the tax year, only one spouse must have a valid SSN for the couple to receive up to $2,800 for themselves, plus up to $1,400 for each qualifying dependent.

What happens if I haven’t filed my 2021 return yet and don’t do so by the filing deadline?

You lose your right to the payment. To claim a refund, you generally need to file your tax return within three years of the date the refund was due (including extensions if you requested an extension before the due date) to get the refund. This includes any 2021 recovery rebate credit amount included in your refund.