If you were unemployed last year and filed your tax return before the latest pandemic relief package became law early this month, you may soon be getting a refund.
Here’s why—and when that refund may go out.
Some taxpayers who received unemployment compensation in 2020 may be eligible for a refund.
Who qualifies for this tax refund?
The pandemic relief package (or American Rescue Plan), which was signed into law on March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation they received last year up to $10,200—or up to $20,400, if married and filing jointly. That means eligible taxpayers would only pay taxes on the unemployment compensation received above those amounts.
On Wednesday, the Internal Revenue Service announced that it will automatically refund money this spring and summer to any taxpayer who filed tax returns that reported unemployment compensation before those recent changes went into effect. For those taxpayers who have already filed their returns, and who figured their tax based on the full amount of unemployment compensation, the IRS said it will determine the correct taxable amount of unemployment compensation and taxes owed. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.
When will tax refunds start going out?
The agency said it will run these tax return recalculations in two phases, starting with those taxpayers who are eligible for the up to $10,200 exclusion. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up to $20,400 exclusion and others with more complex returns.
The first refunds are expected to be made in May and will continue into the summer.
Do you need to file an amended return?
If you’re among those who collected unemployment benefits last year and filed your tax return before the new change took effect, you do not need to file an amended return unless the calculations mean you are now eligible for additional federal credits and deductions that were not already included on your original tax return.
For example, if you claimed the Earned Income Tax Credit and the new recalculation changes your reported income level, you may now be eligible for an increase in the tax credit amount, which may result in an even larger refund. You’d have to file an amended return if you did not originally claim the earned income tax credit or other credits, but are now are eligible because the new exclusion changed your income level.
How many people may qualify for these tax refunds?
According to the Bureau of Labor Statistics, over 23 million U.S. workers nationwide filed for unemployment last year—including some self-employed workers who qualified for unemployed benefits as well. It’s unclear how many of them filed returns before this change took effect. The IRS said it is in the process of determining that. The new IRS guidance also includes details for those eligible taxpayers who have not yet filed their taxes.
About 10 million Americans were still unemployed as of last month. The stimulus relief plan that became law earlier this month extends federal supplemental unemployment benefits at their current level of $300 through September 6. The bill also extends two key pandemic unemployment programs into September. They include the Pandemic Unemployment Assistance program, which provides benefits to some self-employed workers who have lost income as a result of the pandemic, and the Pandemic Emergency Unemployment Compensation program, which provides additional benefits to those who’ve been affected by the pandemic and have exhausted regular state benefits.
