Owed Refund From 2020 Unemployment Compensation? How To Check and Amend (If Necessary)

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The IRS has finally finished issuing refunds to taxpayers who overpaid their taxes in 2021, when stimulus relief tied to COVID-19 provided tax breaks for unemployment benefits to millions of Americans.

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In an announcement last week, the IRS said it completed the final corrections to about 14 million returns, which resulted in nearly 12 million refunds totaling $14.8 billion. The average refund was $1,232.

The refund payments came about because of the American Rescue Plan Act of 2021, which waived federal tax on up to $10,200 of unemployment benefits per person. But as CNBC reported, President Joe Biden signed the law in March 2021, after many households had already filed their tax returns. Millions who qualified for relief but filed their federal taxes early wound up overpaying.

The IRS’s response was to review tax returns that were filed before the bill was signed into law to identify taxpayers that had already reported unemployment compensation as income and were eligible for the correction. The agency then determined the correct taxable amount of unemployment compensation and tax.

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Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed letters to these taxpayers to inform them of the corrections. If you received a letter, be sure to keep it with your records.

Many of the adjustments included corrections to the following:

  • Earned Income Tax Credit.
  • Recovery Rebate Credit.
  • Additional Child Tax Credit.
  • American Opportunity Tax Credit.
  • Premium Tax Credit.
  • Advance Premium Tax Credit.

If you think you were eligible for the unemployment compensation exclusion and your account wasn’t corrected by the IRS, you might need to file an amended 2020 tax return to claim the exclusion — along with any applicable non-refundable or refundable credits impacted by the exclusion.

The IRS advises against filing an amended return if you previously filed one claiming the exclusion. For more information, read the 2020 Unemployment Compensation Exclusion FAQs on IRS.gov.

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If you do need to amend tax year 2020 Forms 1040 and 1040-SR, you can file Form 1040-X, Amended U.S. Individual Income Tax Return electronically with tax filing software. You can also view your 2020 tax records in your online account or request that a 2020 tax account transcript be mailed to you.

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About the Author

Vance Cariaga is a London-based writer, editor and journalist who previously held staff positions at Investor’s Business Daily, The Charlotte Business Journal and The Charlotte Observer. His work also appeared in Charlotte Magazine, Street & Smith’s Sports Business Journal and Business North Carolina magazine. He holds a B.A. in English from Appalachian State University and studied journalism at the University of South Carolina. His reporting earned awards from the North Carolina Press Association, the Green Eyeshade Awards and AlterNet. In addition to journalism, he has worked in banking, accounting and restaurant management. A native of North Carolina who also writes fiction, Vance’s short story, “Saint Christopher,” placed second in the 2019 Writer’s Digest Short Short Story Competition. Two of his short stories appear in With One Eye on the Cows, an anthology published by Ad Hoc Fiction in 2019. His debut novel, Voodoo Hideaway, was published in 2021 by Atmosphere Press.
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