Some folks recently got an early holiday gift from the Internal Revenue Service. The tax agency has issued another 430,000 refunds to taxpayers who overpaid on their unemployment benefits.
Those refunds accounted for tax refunds totaling more than $510 million.
The average refund in this batch comes to about $1,189.
More than a grand definitely can come in handy paying bills or filling up the Thanksgiving table or buying Christmas gifts. But the millions total is this weekend’s By the Numbers figure.
Partially tax-free unemployment: In case you’ve forgotten, these refunds are necessary because of a COVID-related law change. In normal times, all unemployment compensation is deemed taxable income.
However, the American Rescue Plan Act (ARPA) enacted in March excluded the first $10,200 in unemployment from taxation for the 2020 tax year. The tax break applies to taxpayers whose modified adjusted gross income, as individuals or married couples, was less than $150,000.
By the time the measure became law, though, thousands of eager taxpayers had already filed their returns and included all their job-loss benefits.
Since then, the IRS has been recalculating those returns and distributing the appropriate refunds for overpaid taxes on unemployment income.
Total refunds in the billions: Last week’s refunds are just part of an even larger cash-back program related to the overpaid unemployment taxes.
To date, the IRS has issued almost 12 million refunds totaling $14.4 billion.
Overall, the IRS has identified more than 16 million taxpayers who may be eligible for the adjustment. Some will receive refunds, while others will have the overpayment applied to taxes due or other debts.
The IRS says its review of returns and processing corrections is nearly complete. It started assessing the simplest returns it had received. Now it’s concentrating on more complex 2020 filings.
If you haven’t received your unemployment tax overpayment refund yet, hang on. The IRS says it plans to issue another batch of corrections before the end of the year.
Before you get your actual money, be on the lookout for a mailed letter from the IRS. It should arrive within 30 days of your tax adjustment, and let you know what changes the IRS made. This could be a refund, payment of an existing IRS debt, or for another authorized debt, such as offsets for unpaid federal loans or state-ordered child support. The letter also will tell the amount of your tax return’s adjustment.
Changes beyond unemployment: Of course, when it comes to tax calculations, a change in one area tends to affect others on your tax returns.
That’s why that in addition to changes related to taxes on jobless benefits, the IRS says it’s making corrections for Earned Income Tax Credit (EITC), Additional Child Tax Credit, American Opportunity Credit, Premium Tax Credit, and Recovery Rebate Credit amounts that are affected by the unemployment exclusion.
If you got unemployment and also claimed one of the tax breaks listed in the preceding paragraph, the IRS says you most likely don’t need to do anything. Specifically, don’t call the IRS about any potential changes. (You’ll just be put on hold anyway.)
Eligibility for EITC and added Child Tax Credit benefits: The IRS says that it will be sending notices this month and in December to individuals who did not claim the EITC or the Additional Child Tax Credit (ACTC) but may now be eligible for them.
These notices are not confirmation that they are eligible for these credits. But the good news is that if, after getting the letter and following its instructions, you do discover you now are eligible for the EITC and/or ACTC, you won’t have to file an amended return.
Rather, you’ll just need to have to respond to the letter.
Notices regarding additional tax breaks: If after taking the unemployment benefits exemption into account, you find you are eligible for other credits and/or deductions that you didn’t originally claim, then you’ll need to amend your 2020 taxes.
You’ll do that by filing Form 1040-X, Amended U.S. Individual Income Tax Return/
More details are available on the IRS’ 2020 Unemployment Compensation Exclusion FAQs page.
You also might find these items of interest:
- States forgo federal help to replenish unemployment funds. Why?
- Unemployment tax troubles: wrong 1099-G amounts & benefits ID theft
- A Child Tax Credit work requirement likely wouldn’t work as proponents predict
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