IRS readies
nearly 4 million refunds for unemployment compensation overpayments
The IRS announced today it will issue another round of refunds this
week to nearly 4 million taxpayers who overpaid their taxes on unemployment
compensation received last year.
The American Rescue Plan Act of
2021, which became law in March, excluded up to $10,200 in 2020 unemployment
compensation from taxable income calculations. The exclusion applied to
individuals and married couples whose modified adjusted gross income was less
than $150,000.
Refunds by direct deposit will
begin July 14 and refunds by paper check will begin July 16. The IRS previously
issued refunds related to unemployment compensation exclusion in May and June,
and it will continue to issue refunds throughout the summer.
To ease the burden on
taxpayers, the IRS has been reviewing the Forms 1040 and 1040SR that were filed
prior to the law’s enactment to identify those people who are due an
adjustment. For taxpayers who overpaid, the IRS will either refund the
overpayment, apply it to other outstanding taxes or other federal or state
debts owed.
For this round, the IRS
identified approximately 4.6 million taxpayers who may be due an adjustment. Of
that number, approximately 4 million taxpayers are expected to receive a
refund. The refund average is $1,265, which means some will receive more and
some will receive less.
Most taxpayers need not take
any action and there is no need to call the IRS. However, if, as a result of
the 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.
Taxpayers should file an amended
return if they:
- did
not submit a Schedule 8812 with the original return to claim the
Additional Child Tax Credit and are now eligible for the credit after the
unemployment compensation exclusion;
- did
not submit a Schedule EIC with the original return to claim the Earned Income
Tax Credit (with qualifying dependents) and are now eligible for the
credit after the unemployment compensation exclusion;
- are
now eligible for any other credits and/or deductions not mentioned below.
Make sure to include any required forms or schedules.
Taxpayers do not need to file an
amended return if they:
- already
filed a tax return and did not claim the unemployment exclusion; the IRS
will determine the correct taxable amount of unemployment compensation and
tax;
- have
an adjustment, because of the exclusion, that will result in an increase
in any non-refundable or refundable credits reported on the original
return;
- did
not claim the following credits on their tax return but are now eligible
when the unemployment exclusion is applied: Recovery Rebate Credit, Earned
Income Credit with no qualifying dependents or the Advance Premium Tax
Credit. The IRS will calculate the credit and include it in any
overpayment;
- filed
a married filing joint return, live in a community property state, and
entered a smaller exclusion amount than entitled on Schedule 1, line 8.
Taxpayers will generally
receive letters from the IRS within 30 days of the adjustment, informing them
of what kind of adjustment was made (such as refund, payment of IRS debt
payment or payment offset for other authorized debts) and the amount of the adjustment.
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