New IRS Unemployment Tax Refund Update
If you, or anyone you know, paid any taxes on unemployment last year, read on because we have some very important news for you.
It is regarding 2020 tax refunds and those who paid taxes on their unemployment compensation last year.
The IRS just recently announced that they will be issuing tax refunds to over 2.8 million taxpayers this week who paid taxes on unemployment compensation.
We repeat – 2.8 MILLION taxpayers are getting tax refunds.
In addition, the IRS has already identified 13 million taxpayers that may also be receiving refunds.
Earlier this year, the American Rescue Plan Act of 2021 excluded $10,200 in unemployment compensation when calculating taxable income.
But a lot of taxpayers already filed their tax returns and paid the tax on this income. In which case, an adjustment is needed in order to claim the refund.
By the end of this post, we want you to be 100% clear on this new unemployment tax refund.
So today, we will break down what the unemployment tax refund is, who should be receiving a refund, and when to expect a refund.
As well as the specific steps you need to take in order to receive your refund as quickly as possible.
We’ll even give you the steps to check the status of your refund online.
Sounds good? If so, then let’s get into it.
What is the Unemployment Tax Refund
So what exactly is going on with the IRS and the unemployment tax refund?
Well, back in March, the American Rescue Plan Act of 2021 was signed, which made the first $10,200 received in unemployment compensation non-taxable per taxpayer.
So if you were 1 of the millions of Americans who lost their jobs in 2020 and started collecting unemployment compensation from the government, this applies to you.
Who Should Be Receiving a Tax Refund
Now to be clear, this is considered a tax exclusion.
A tax exclusion means income that doesn’t get included as a part of your taxable income.
Instead, it is an exclusion.
So if your tax preparer included all of your unemployment compensation as taxable income…
…there needs to be an adjustment made to exclude the first $10,200 in your taxable income and this will likely result in a refund.
But don’t expect a $10,200 refund, okay?
This exclusion applies to each taxpayer.
For example, if you are married and both you and your spouse lost your jobs and collected unemployment benefits…
…then the first $20,400 in unemployment compensation is non-taxable if you file jointly.
That is $10,200 per taxpayer.
So these amounts are very significant if you did claim all of your unemployment compensation as taxable income on your 2020 tax return.
Also, keep in mind that this exclusion is only for taxpayers who had less than $150,000 in adjusted gross income last year.
What You Need To Do
What do you need to do to claim the unemployment compensation exclusion?
The good news is that the IRS already announced that they will be doing the majority of the necessary corrections to tax returns that were filed incorrectly.
This will help the most affected taxpayers avoid filing an amended return.
The IRS is first correcting simpler tax returns so those taxpayers filing single with no dependents.
Then they will gradually move on to the more complex returns like those filing jointly or with dependents.
When to Expect Your Refund
The first refunds to single filers went out earlier this week and the next round of refunds are planned to go out in mid-June.
The final payments will go out towards the end of the summer.
Do You Need to File an Amended Return?
Now some taxpayers may need to file an amended return to claim the exclusion.
And those are taxpayers who have qualifying children and who become eligible for the Earned Income Tax Credit after the exclusion is calculated in order to claim any new benefits.
So for some taxpayers, when their taxable income is reduced by $10,200, it may qualify them for the EITC, and result in an even higher refund.
This varies from person to person.
You would need to know your Adjusted Gross Income or AGI before and after the exclusion.
Looking at this chart, for example.
If you were single with 1 dependent and had an AGI of $42,000 in 2020, you would not qualify for the EITC.
But after applying the $10,200 exclusion, you would qualify for the EITC and be entitled to an even larger refund of at least $3,584
Now, the IRS will adjust tax returns for those who are single with no children and who become eligible for the EITC after the exclusion.
And then, adjust tax returns where EITC was claimed and qualifying children identified.
The IRS also is making corrections for the Premium Tax Credit and Recovery Rebate Credit affected by the exclusion.
So, in short, you only need to file an amended return if you claimed qualifying children on your original tax return, and after the exclusion, you become eligible for the EITC.
The IRS has said you will receive a letter from the IRS, within 30 days informing you of any adjustment they made and if any refund is due.
If you have outstanding tax debts with them, it is likely that they will apply any new refund amount to that debt automatically.
Again, you will be notified via mail of any adjustments like this.
Check Your Refund Status
If you want to check if a new refund has been processed, you can on irs.gov.
Here you can check your refund amount and when you can expect to receive any additional refund.
1. You would first need to have an account set up with irs.gov. We highly recommend doing this if you haven’t already so you can check on important things like this.
2. Once in your account, you’ll need to navigate to the View Tax Records link and click Get Transcript.
It’ll prompt you for a reason and the reason would be “Federal Tax”
3. Next, select the 2020 Account Transcript which will then open a document that shows your IRS transactions.
Specifically, look for any transaction that says “Refund Issued” and it should have a June date by it.
If you don’t see any transactions, labeled ‘Refund’, it means that the IRS hasn’t gotten your return yet.
If that’s you, sit tight. There isn’t much for you to do at this point unless of course, you fall into the category of needing to file an amended return.
There you have it! We hope this post helped you better understand what’s going on with the unemployment tax refunds.
But if you think you’ll need more guidance with your particular tax situation, don’t hesitate to get in touch with us.