Can you claim the Recovery Rebate for a baby in 2020 if you use your 2019 Adjusted Gross Income (AGI) to qualify for an Earned Income Credit and a Child Tax Credit?
Yes. But no wonder you're confused.
Let's start with the Recovery Rebate. Since last March, married couples with AGI up to $150,000 and single taxpayers with AGI up to $75,000 have received a total of $1,100 in relief payments for each of their qualifying dependent children. Eligibility for those payments for dependent children was based on 2019 tax returns, which naturally didn't list children born or adopted in 2020.
To claim those relief payments for children who arrived in 2020, you must complete a Recovery Rebate Worksheet and include the credit amount on Line 30 of Form 1040.
In an unrelated onetime tax break, taxpayers can use their 2019 or their 2020 AGI to determine their eligibility for the Earned Income Credit and the Child Tax Credit. (Do the calculation twice, and use the AGI that gives you the bigger tax credit.)
You don't have to recalculate your 2020 tax return as a result of the new American Rescue Plan signed by President Biden on March 11. Among its other provisions, for 2021 only the new law increases the Child Tax Credit from $2,000 to $3,000 for each child under age 17 and to $3,600 for each child under age 6. The government will determine your eligibility for the new credit based on your most recent tax return. Qualifying taxpayers will receive half the enhanced credit in monthly payments of $250 or $300, from July through December, and the remaining half after they file their 2021 taxes next year.
The bottom line
Relief measures created in response to the pandemic make 2020 tax returns more complicated than usual.
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