What Is an EIP? How to Claim the Recovery Rebate Credit

Economic Impact Payments (EIPs) were a series of financial disbursements from the federal government designed to provide economic relief to individuals and families during a period of significant economic disruption. Often referred to as “stimulus checks,” these payments aimed to bolster household finances and stimulate the broader economy. Authorized by legislative acts such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the COVID-related Tax Relief Act of 2020, and the American Rescue Plan Act of 2021, EIPs served as an advance payment of a refundable tax credit. Their primary objective was to quickly inject funds into the economy and support those facing financial hardship.

Determining Eligibility

Eligibility for Economic Impact Payments largely depended on adjusted gross income (AGI), residency status, and Social Security Number (SSN) requirements. For the initial payments, full amounts were generally available to single filers with an AGI up to $75,000, heads of household up to $112,500, and married couples filing jointly up to $150,000. Payment amounts were gradually reduced for incomes exceeding these thresholds.

Recipients generally needed to be U.S. citizens or resident aliens and could not be claimed as a dependent on another taxpayer’s return. A valid SSN was required for the taxpayer, their spouse (if filing jointly), and any qualifying dependents to receive the payment. Qualifying dependents, including children under a certain age, could increase the payment amount. Individuals who were nonresident aliens or those claimed as dependents by others were typically excluded from receiving EIPs.

Payment Distribution Methods

Economic Impact Payments were distributed through several methods, with the most common being direct deposit, paper checks, and prepaid debit cards. Direct deposit was the fastest and most widely used method, with funds electronically transferred to eligible recipients’ bank accounts. For those without direct deposit information on file with the Internal Revenue Service (IRS), paper checks were mailed to their last known address.

In some instances, recipients received their EIPs on prepaid debit cards, often referred to as EIP debit cards. These cards were mailed in white envelopes from the U.S. Department of the Treasury and could be activated and used like standard debit cards. Payments were issued in distinct phases or “rounds” following the passage of each authorizing legislative act.

Claiming Unreceived or Insufficient Payments

Individuals who did not receive their full Economic Impact Payment, or any payment at all, were able to claim the missing amount through the Recovery Rebate Credit (RRC). This credit functioned as a reconciliation of the advance EIPs received and was claimed on a federal income tax return for the relevant tax year. The RRC allowed taxpayers to receive the amount they were eligible for based on their actual income and family situation for the tax year the EIP applied to, even if their prior year’s tax information, which the IRS used to send the advance payments, differed. EIPs are not considered taxable income and should not be reported as such on a tax return.

To claim the Recovery Rebate Credit, taxpayers needed to file a federal income tax return for the tax year corresponding to the missing EIP. For example, missing first or second EIPs were claimed on a 2020 tax return, and missing third EIPs were claimed on a 2021 tax return. Before filing, it was helpful to gather any IRS notices received, such as Notice 1444, Notice 1444-B, or Notice 1444-C, which confirmed the amount of EIPs issued to them.

The Recovery Rebate Credit was reported on Line 30 of Form 1040 or Form 1040-SR for the applicable tax year. Taxpayers would use the Recovery Rebate Credit Worksheet found in the Form 1040 instructions to calculate the correct amount to enter. This calculation involved comparing the EIP amount received, if any, against the amount the taxpayer was eligible for based on their current tax year’s AGI and dependents. If the calculated credit amount was positive, it would either reduce any tax owed or result in a tax refund. Even individuals not typically required to file a tax return needed to file to claim this credit.