One of the key pieces of the American Rescue Plan is a third round of ‘stimulus checks’.  Officially referred to as 2021 Recovery Rebates, the latest round of stimulus checks serves as an advance receipt of a 2021 income tax credit.

While the 2021 Recovery Rebates share a number of similarities with their 2020 Recovery Rebate counterparts (as authorized by the CARES Act and the Consolidated Appropriations Act), there are also a number of meaningful differences.  More specifically, the American Rescue Plan expanded the criteria to determine the number of individuals eligible for the rebate making eligibility much broader.  However, taxpayers will also see the 2021 rebates phased out much more quickly than rebates authorized under the CARES Act and the Consolidated Appropriations Act.

The rebate calculation starts by multiplying $1,400 times the total number of eligible individuals, which includes not just taxpayers themselves but also any dependents of the taxpayer.  The decision to swap “children for whom a Child Tax Credit can be claimed” with “dependents” for inclusion as an eligible individual in the American Rescue Plan creates a Recovery Rebate formula that is significantly more inclusive.  Additionally, taxpayers who claim elderly and/or infirm family members as dependents will also benefit from the revised criteria for Recovery Rebate eligibility.

The income phaseout for the 2021 Recovery Rebates is new and applies faster than the 2020 Acts. The Recovery Rebates are completely phased out over extremely narrow, uniform-by-filing-status phaseout range.  In other words, taxpayers with the same filing status have the same phaseout range, regardless of the size of their base Recovery Rebate.  The adjusted gross income (AGI) phaseout ranges are:

• Single Filers and Married Filing Separate: $75,000 - $80,000
• Head of Household: $112,500 - $120,000
• Married Filing Joint: $150,000 - $160,000

At this point, many of you may have already received your stimulus check (via direct deposit, check, or debit card).  The 2021 Recovery Rebate is being paid now based on a prior year’s AGI, but it is still a 2021 credit. 

However, if you have not yet received a check or received only a portion of the stated rebate, there are three “checkpoints” to determine if you will ultimately qualify for the Recovery Rebate.

Checkpoint 1: Most recent AGI on file with the IRS (when the IRS first processed the 2021 Rebates)

If the most recent AGI on file with the IRS (2019 or 2020) is equal to or less that the lower limit of the phaseout range (e.g., $75,000 for single, $150,000 for joint filers), the IRS will send the taxpayer the full amount of their Recovery Rebate and there will be no need to move to ‘Checkpoint 2’ or ‘Checkpoint 3’.

Checkpoint 2: The ‘Additional Payment Determination Date’ (for those taxpayers who have not filed their 2020 tax returns yet)

Taxpayers who have not yet filed their 2020 tax return, but file it prior to the Additional Payment Determination Date, will have their Recovery Rebate amount recalculated based on the newly reported 2020 AGI.  If using the 2020 AGI produces a higher Recovery Rebate compared to the amount initially calculated using 2019’s AGI, the IRS will send an additional stimulus ‘check’ to the taxpayer after they file their 2020 return to ‘true up’ the difference in the appropriate 2021 Recovery Rebate. The Additional Payment Determination Date is the earlier of:

• 90 days after the 2020 calendar year filing deadline; or
• September 1^st, 2021

Note - if the taxpayer files their 2020 return after the Additional Payment Termination Date, they will forfeit the opportunity to use ‘Checkpoint 2’ with 2020’s (possibly lower) AGI and will go directly to ‘Checkpoint 3’.

Checkpoint 3: Filing of the 2021 Tax Return

The third and final ‘Checkpoint’ to determine if an individual will receive a 2021 rebate is the filing of their 2021 income tax return.  If the 2021 AGI is lower than the 2019 and/or 2020 AGI(s) and the income is low enough to produce a larger 2021 Recovery Rebate credit, the credit (or remaining amount not already received) will be applied on their 2021 income tax return.

As with the previous Acts, there is no ‘clawback’ of previously paid rebates on the taxpayer’s 2021 tax return even if the taxpayer’s 2021 income is high enough to completely phase them out of receiving the credit.