In March 2020, President Donald Trump signed the CARES Act into law. One of the provisions was to send $1,200 to every eligible taxpayer and $500 for each eligible dependent under 16 with a limit of three dependents. In order to get the checks out fast, the IRS based the check amount on the 2018 or 2019 Adjusted Gross Income (AGI).

On December 26, 2020, President Trump signed another COVID relief bill that issued a $600 check per taxpayer and qualifying dependent. These checks were also calculated based on 2019 AGI ahead of the 2020 filing season.

However, some taxpayers who did not qualify for the stimulus checks based on their 2018 or 2019 AGI had reduced AGI in 2020.

The Recovery Rebate Credit calculates the amount of stimulus money the taxpayer would have received if the IRS had used 2020 AGI. If the taxpayer did not receive the full amount they were entitled to, the difference between the credit and the amount received will then increase the refund or decrease the amount owed for 2020. If the calculation shows that the taxpayer received more than they were entitled to, no harm done. The IRS will not ask for the money back.

While the stimulus check is not included in your taxable income, your tax preparer will need to know how much you received from the first and second stimulus check in order to properly calculate the Recovery Rebate Credit on your 2020 income tax return.

For more information on the Recovery Rebate Credit, and for the latest update on stimulus checks, please visit the IRS Website:

https://www.irs.gov/newsroom/recovery-rebate-credit