As a tax preparer, you have to know everything that can potentially affect your clients. More importantly, you need to help them resolve any issues and guide them through complicated processes.
Aside from using reliable software for tax preparers, you also need to be updated on every change that applies to your clients. For instance, the Questions Recovery Rebate has been a significant update and one that your clients must know about, and that is what we will talk about in this article:
What’s a Recovery Questions Rebate Credit?
The 2020 CARES Act mandated that taxpayers who did not get the full amount of economic impact payments (EIP) they were eligible for will be given a refundable tax credit. It applies to both the first and second rounds of stimulus payments approved last year.
Who Among Your Clients Are Eligible for the Questions Recovery Rebate?
As mentioned above, any client of yours who hasn’t received their EIP in full is eligible to claim their Questions Recovery Rebate credit. In a nutshell, your clients who have gone through a significant life event within the 2019-2020 tax year have affected the amount they were eligible for. For instance, this applies if the client:
- Experienced a drop in income last year.
- Adopted a child in 2020 (Both EIPs paid $500 and $600 per qualifying child).
- Is no longer considered dependent on another person’s tax return.
- Did not file a tax return in 2019 and hadn’t received either stimulus payment.
- Has a partner with an ITIN. The Consolidated Appropriations Act of 2021 changed the previous requirement that an ITIN holder’s spouses were not eligible for payment unless they were in the military. Now, as long as the individual has a valid social security number, they will qualify for the credit.
How Do You Determine Eligibility?
You will have to complete the Questions Recovery Rebate Credit Worksheet for either form 1040 or 1040S, and this should already be integrated into your professional tax preparation software. The worksheet will be filled out and calculated based on the amount the taxpayer received for both stimulus payments.
For this reason, you must know how much your client received in EIP. If they aren’t sure, you can check the IRS Notice 1444 and 1444-B on their IRS account online.
How Do You Assist Your Clients Who Are Eligible for the Questions Recovery Rebate?
Upon completing the Questions Recovery Rebate Credit Worksheet, all you need to do is enter the amount into Line 30 on either Form 1040 or 1040S. Then, this amount will automatically be added to their refund, or if they have taxes owed, the amount could be used to offset that.
What Will Happen if a Client Received More Than What They Should Have in Their EIP?
Let’s say your client got a raise in 2020. Because they may have qualified for the EIP based on their income in 2019, even if they do not qualify for 2020, they may still have received their stimulus checks. In this case, they are permitted to keep it, and no repayment is necessary. However, this does not apply to those who have received EIP for a deceased loved one, such as a spouse. For this situation, they will have to return the payment to the IRS, and you can assist them through the process as indicated on their website.
There might also be an issue if a parent claimed a child that is no longer on their 2020 return. The way it should be is that whoever has the child on their 2020 tax return should get the Recovery Rebate Credit. It doesn’t matter whether or not the taxpayer is the custodial parent.
Conclusion
Remember that the whole Questions Recovery Rebate matter can be confusing to some of your clients. And as their trusted tax preparer, you must make sure that they understand it and comply with the law. By considering the information given above, you can make the right decisions for your clients so that they don’t end up facing penalties!
Keystone Professional Tax Software is made specifically for purposes like this, to make sure that you can do your job as a tax preparer as hassle-free as possible. Having the best professional tax software can help make the job easier when changes like this happen because you can update the forms and the clients’ records without hassle! Get in touch with us today to learn more about our services!
