4 Million Taxpayers Anticipate IRS Refund This Week For Overpaid Unemployment Benefits
Almost 4 million refunds will be sent out this week to taxpayers who overpaid taxes on their 2020 unemployment benefits, the IRS recently announced.
The American Rescue Plan stimulus relief bill was signed into law in March, and included benefits for unemployment that were not available before the bill’s passing. If you happened to file your taxes early, you might be eligible to receive one of these retroactive payments.
As part of the relief bill, up to $10,200 in 2020 unemployment compensation are exempt from federal tax. This exclusion was applied to individuals and married couples whose modified adjusted gross income was less than $150,000. The IRS claims that to ease the burden on taxpayers, it has been reviewing Forms 1040 and 1040 SR that were filed prior to the law’s enactment to identify those who are due an adjustment. For anyone who has overpaid, the IRS will either issue a refund of the overpayment or apply it to other outstanding taxes/federal/state debts owed. Important to note: this benefit applies to federal tax — your state can have its own provisions for taxing unemployment benefits.
The IRS stated that the first refunds by direct deposit began yesterday, and refunds by paper check will begin July 16. This is the third round of exclusion refunds the IRS is issuing, with the first having been sent out in May and June.
For this round, the IRS identified roughly 4.6 million people who may be eligible for an adjustment, with 4 million of those taxpayers expected to receive a refund. The average refund is $1,265, with some receiving more and others receiving less.
The IRS stressed that most people will not need to take any further action or call the IRS in order to receive the refund if they are eligible. They did note, however, that if as a result of “excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.”
You should file an amended return if you did not submit a Schedule 8812 with the original return to claim the additional child tax credit and are now eligible after the unemployment exclusion, did not submit a Schedule EIC, or are now eligible for any other credits/deductions.
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Last updated: July 15, 2021