IRS Announces Another Round of Unemployment Tax Refunds
The Internal Revenue Service disclosed it’s not done issuing refunds for tax paid on certain unemployment benefits received in 2020. So far, the IRS has completed four rounds of refunds due to the unemployment compensation exclusion, including 9 million individual refunds totaling over $10 billion. Another 1.5 million taxpayers are scheduled to receive refunds averaging about $1,600 as part of the latest round of IRS adjustments.
This process started in the wake of the American Rescue Plan Act of 2021, which excluded up to $10,200 in 2020 unemployment compensation from taxable income. The exclusion was limited to individuals and married couples with modified gross income of less than $150,000.
Most taxpayers impacted by the change (those who filed their 2020 tax returns early, before the unemployment exclusion was implemented) don’t need to file an amended return because the IRS will automatically adjust their tax return for them. The IRS’s automatic adjustment process started with the simplest returns and is now working to adjust more complex returns – for example returns for which the exclusion also impacts the Advance Premium Tax Credit.
Once the IRS makes an adjustment, a letter is sent to the taxpayer to inform them of the reason for the adjustment and the amount, as well as whether they will receive a refund, or if the funds will be used to pay a debt to the IRS or some other authorized debt.
While most taxpayers don’t need to file an amended return, there are a few types of taxpayers who may benefit from amending due to the unemployment exclusion, for example:
Taxpayers who did not submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit after the unemployment compensation exclusion;
Taxpayers who did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible for the credit after the unemployment compensation exclusion; or
Taxpayers who find they are now eligible for other credits or deductions they weren’t previously
Have more questions? Schreiber Accounting and Advisory can help you understand how the unemployment exclusion affects your tax situation. Contact the firm for more information.
Material discussed is for informational purposes only. It is not to be interpreted as investment, tax, or legal advice. Individual situations vary, and this information should only be relied upon when coordinated with individual professional advice.