The Internal Revenue Service (IRS) has announced that over one million taxpayers may be eligible for unclaimed funds related to the 2021 Recovery Rebate Credit (RRC). This credit, part of the American Rescue Plan Act of 2021, provided economic relief during the COVID-19 pandemic. The IRS is proactively identifying and issuing these payments, totaling an estimated $2.4 billion, with individual payments reaching a maximum of $1,400. This initiative aims to ensure that all eligible taxpayers receive the financial support they are entitled to, streamlining the process by automatically issuing payments without requiring individuals to file amended returns.
The RRC was designed as an advance payment of a tax credit, with eligible individuals receiving payments throughout 2021. The credit amount was based on income, phasing out for individuals with adjusted gross incomes exceeding $75,000, or $150,000 for married couples filing jointly. Importantly, the credit was completely phased out for individuals earning $80,000 or more, and $160,000 or more for joint filers. This meant some individuals who received stimulus payments in 2020 based on their 2019 income might not have been eligible for the 2021 RRC. Taxpayers who did not receive the full credit amount in 2021 could claim the remaining amount on their 2021 tax returns filed in 2022.
The current effort stems from the IRS’s internal data review, revealing that a significant number of eligible taxpayers failed to claim the RRC on their 2021 returns. This may have occurred due to the complexity of the credit or simply oversight. The IRS initially indicated it would not automatically calculate or correct the RRC if left blank or entered as zero on tax returns. However, recognizing the potential hardship this could cause, the IRS has reversed course and is taking proactive steps to rectify the situation. This proactive approach underscores the agency’s commitment to ensuring taxpayers receive the funds they are due.
The IRS will automatically distribute the RRC payments in December 2024, with arrival expected by late January 2025. These payments will be delivered via direct deposit or paper check, based on the information provided on the taxpayers’ 2023 tax returns. Additionally, the IRS will send a notification letter to each recipient detailing the payment. This automated process eliminates the need for taxpayers to take any action. In cases where bank accounts listed on 2023 returns are closed, the payment will be returned to the IRS and subsequently reissued as a paper check to the taxpayer’s address of record. This ensures that even those with changed banking information will receive their payments without additional effort.
While the majority of eligible recipients will receive their payments automatically, those who did not file a 2021 tax return and believe they are eligible must take action. The deadline to file a 2021 return and claim the RRC is April 15, 2025. This is crucial, as failing to file by the deadline will forfeit any potential RRC payment and other refunds owed. The IRS emphasizes the importance of filing a complete and accurate return to claim the credit and any other applicable deductions or credits.
Further clarifying the RRC, the payments are non-taxable for federal income tax purposes and do not affect eligibility for federal benefits programs such as SSI, SNAP, TANF, and WIC. To claim the RRC, individuals generally require a valid Social Security Number (SSN). There are specific provisions for married couples filing jointly where one or both spouses lack an SSN. In such cases, the couple may still be eligible for a partial credit based on the qualifying dependents claimed on their return. An exception applies for military families, where only one spouse needs a valid SSN if the other spouse is an active member of the U.S. Armed Forces.
