American taxpayers accumulating tax refunds and potential stimulus payments are urged to act quickly, especially as the Internal Revenue Service (IRS) prepares to distribute special $1,400 checks to nearly one million eligible individuals. These payments are part of the Recovery Rebate Credit for 2021, with the IRS estimating that approximately $2.4 billion will be issued to help those who previously missed out.
As the deadline to file 2021 tax returns approaches on April 15, 2025, taxpayers who have not yet submitted their returns are reminded that they must do so to claim any tax refunds, including the Recovery Rebate Credit. This refundable credit applies to those who did not receive one or more Economic Impact Payments (EIPs), commonly known as stimulus payments, during the pandemic.
“Looking at our internal data, we realized that one million taxpayers overlooked claiming this complex credit when they were actually eligible,” said IRS Commissioner Danny Werfel in a statement. He emphasized the agency's efforts to automatically distribute payments to eligible individuals, eliminating the need for them to file amended returns.
The IRS is notifying eligible taxpayers via letters, and the payments should have started arriving by late January 2025, either through direct deposits or paper checks. For those who qualify for the Recovery Rebate Credit, there is no action required on their part, as the payments are being processed automatically based on their 2021 tax filings.
The maximum payment an eligible individual can receive is $1,400, contributing to the total estimated distribution of roughly $2.4 billion. According to the IRS, payments will vary depending on individual circumstances, but approximately one million taxpayers are set to benefit.
In addition to the Recovery Rebate Credit payments, the IRS has flagged over $1 billion in unclaimed refunds for tax year 2021. Those eligible must file a 2021 Form 1040, the Federal Income Tax Return. If these returns are not filed by the April 15, 2025 deadline, the funds will revert to the U.S. Treasury.
The IRS usually allows taxpayers three years to file and claim any refunds, and as stated, the window is quickly closing. According to IRS data, the median refund amount for those who have filed Form 1040 for 2021 is found to be $781, not including possible credits like the Recovery Rebate Credit.
“In most cases, the IRS already has this in their system and will catch the error before issuing the payment,” said Kevin Thompson, a finance expert from 9i Capital Group. He continued, “If the IRS sends out money by mistake, they will eventually claw it back—likely with interest.”
Michael Ryan, another finance expert, warned against trying to double-dip on these payments: “If someone's already received that third stimulus payment or claimed it on a previous tax return, trying to double-dip could really come back to bite them,” he noted, highlighting a potential 20% penalty on incorrect claims, which could add up to $280 on a $1,400 claim plus daily compounding interest.
Importantly, the Recovery Rebate Credit is available for individuals earning an adjusted gross income of no more than $75,000 in 2021, with the limit for married couples set at $150,000. Those above these income thresholds will not be eligible for this particular credit.
The IRS's initiative to automatically distribute these payments has come as a response to complications arising from the pandemic stimulus efforts. Initial packages provided three rounds of stimulus payments, totaling around $814 billion. Payments were allocated according to income thresholds, which determined how much eligible households received.
In March 2020, under the CARES Act, eligible individuals received up to $1,200, followed by $600 under the Consolidated Appropriations Act in December 2020, and $1,400 as a part of the American Rescue Plan in March 2021. The combined impact of these efforts is reflected in the Recovery Rebate Credit, which aims to ensure that individuals who missed out previously can still receive financial assistance now.
Looking ahead, taxpayers are advised not to miss this opportunity to claim their benefits, as the April 15, 2025 deadline approaches. Attempts to erroneously claim payments a second time could lead to significant issues, as the IRS has stated that those who improperly attempt to collect funds may face long-term consequences including penalties and interest charges that could be substantial.
“The IRS doesn't play around with this stuff, and the penalties can haunt your tax situation for years,” cautioned Alex Beene, a financial literacy instructor from the University of Tennessee at Martin. Beene’s sentiment reflects the serious approach necessary in finalizing tax claims accurately.
In summary, the IRS's automatic distribution of the Recovery Rebate Credit aims to alleviate financial stress for low-income households who experienced the consequences of the pandemic. For those eligible, this is a crucial moment to ensure they receive their rightful payments.
As we quickly approach the deadline, it remains imperative for individuals to check their eligibility for these funds while conducting their tax filings. With unclaimed refunds awaiting action, timely and correct submissions are essential to secure this financial assistance before it potentially disappears back to the Treasury.
