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Per the 1040 instructions for Line 30, if you didn’t receive the full amount of the recovery rebate credit as economic impact payments, you may be able to claim the recovery rebate credit on your 2020 Form 1040 or 1040-SR.
The first round of economic impact payments (EIP 1) was sent out beginning in April 2020, and the second round of economic impact payments (EIP 2) was sent out beginning in late December 2020. You may have received one or both of these payments.
You don’t qualify for the recovery rebate credit if, for EIP 1:
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You received $1,200 plus $500 for each qualifying child you had in 2020, or
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You’re filing a joint return for 2020 and together you and your spouse received $2,400 plus $500 for each qualifying child you had in 2020.
And for EIP 2:
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You received $600 plus $600 for each qualifying child you had in 2020, or
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You’re filing a joint return for 2020 and together you and your spouse received $1,200 plus $600 for each qualifying child you had in 2020.
In addition, the Recovery Rebate Worksheet in the 1040 instructions shows to include EIP2 starting on Line 8.
Since the IRS guidance is to include the EIP2 amount received in the calculation, It does not matter whether your client is a cash-basis taxpayer. Your client has not yet filed their return (almost two months after they received their payment) and therefore, the information should not be purposefully omitted on their return.
Even if it the EIP2 was not included, then the IRS will automatically adjust your client's return and deduct the Recovery Rebate Credit claimed since it does not match what is in their database. I have taken the below snapshot from 2020 Recovery Rebate Credit — Topic G: Correcting issues after the 2020 tax return is filed,
The only reconciliations that will be made on 2021 tax returns will be for EIP3. Only 2020 returns are reconciling EIP1 and EIP2.
