Thousands to get refunds on taxes paid on unemployment benefits in 2020. What to know
Americans who overpaid in taxes on unemployment benefits received in 2020 could be getting a refund.
The Internal Revenue Service said Nov. 1 it sent another round of refunds to roughly 430,000 people who paid taxes on unemployment benefits that were exempt from taxable income under the American Rescue Plan, the $1.9 trillion COVID-19 relief package signed into law by President Joe Biden in March.
Previous rounds of the refunds were given to millions of Americans over the summer, according to the IRS.
Here’s what to know about the latest round of refunds.
Who will get them?
The American Rescue Plan made up to $10,200 in unemployment benefits tax-exempt for many people — meaning some who received jobless benefits in 2020 did not have to pay taxes on compensation up to that amount.
But many people who were eligible for the exemption filed their 2020 income taxes this year before the American Rescue Plan became law and therefore may have paid taxes on unemployment compensation that was exempt.
The refunds will go to those who did so and who have not yet received a refund from the IRS.
The IRS said it has already reviewed simpler tax returns and that it’s now “concentrating on more complex returns.” It said it plans to send out another round of adjustments before the end of 2021.
“The IRS efforts to correct unemployment compensation overpayments will help most of the affected taxpayers avoid filing an amended tax return,” the IRS said Nov. 1. “So far, the IRS has identified over 16 million taxpayers who may be eligible for the adjustment.”
How much are the refunds worth?
Some taxpayers who are eligible for an adjustment will receive refunds, and others will have the amount they overpaid applied to “taxes due or other debts,” according to the IRS.
The IRS said $10,200 is what’s “excluded when calculating one’s adjusted gross income” — not the refund amount.
The average amount sent out in the most recent group is about $1,189, according to the IRS. The refunds included in the latest round are worth a total of $510 million.
“To date, the IRS has issued over 11.7 million refunds totaling $14.4 billion,” the agency said.
How the refunds work
The IRS has previously said most taxpayers who are owed an adjustment don’t need to do anything.
Those who qualify for refunds will have them sent through direct deposit if they have a a bank account on file with the IRS. If they don’t, the payment will be sent through the mail to the address on file with the agency.
The IRS said “unpaid debts” that the adjustment could go toward include “past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts, such as student loans.”
“Impacted taxpayers will generally receive letters from the IRS within 30 days of the adjustment, informing them of what kind of adjustment was made (refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment,” the IRS said.
About the exemption
The exemption included in the American Rescue Plan applied to taxpayers who made less than $150,000 in “modified adjusted gross income” in 2020.
“The modified AGI for purposes of qualifying for this exclusion is your adjusted gross income for 2020 minus the total unemployment compensation you received,” the IRS said.
The IRS said the same income threshold applies to people who are married and filing jointly.
“To determine if you’re under the $150,000 threshold and qualify for the exclusion, subtract all of the unemployment compensation reported on Schedule 1, Line 7, from the amount of your AGI reported on Line 11 of Form 1040, 1040-SR, or 1040-NR,” the agency said.
This story was originally published November 2, 2021 at 7:14 AM with the headline "Thousands to get refunds on taxes paid on unemployment benefits in 2020. What to know."
