Today, we’re going to give an update on what exactly is going on with your money.
But recently, the IRS just announced that they are sending out refunds to 4 million people!
And this is related to the millions of people who were wrongfully taxed last year on their unemployment compensation.
If you lost your job last year and started collecting unemployment benefits from the government, this update applies to you.
For this round, the IRS identified about 4.6 million taxpayers who may be due an adjustment on their return because of this.
And of that, about 4 million taxpayers are expected to receive a refund.
The average refund is $1,265, which means some taxpayers will receive a little more and some will receive a little less.
Now, we know what you might be thinking that this is old news and you have been waiting forever to receive your refund and none of this is new.
But hear us out. There are a few new items that you need to be aware of, like if you need to file an amended return in order to receive your refund in a timely manner.
So be sure to read this post until the very end and let’s get started!
In this post, we’re going to give you the latest unemployment tax refunds update.
As well as break down to you what you need to know in order for you to claim your unemployment tax refund based on recent updates from the IRS.
Unemployment Tax Refunds Update and Recap
A little background, in case you didn’t know, due to the recent passage of the American Rescue Plan of 2021…
…the IRS has now considered the first $10,200 of unemployment compensation received in 2020 as non-taxable.
This amount doubles for married couples and makes the first $20,400 of unemployment compensation non-taxable.
Do remember that normally unemployment compensation is taxable, but because of all of the craziness last year, a portion of that has been deemed non-taxable.
And by the way, this exclusion only applies to individuals and married couples whose modified adjusted gross income was less than $150,000 in 2020.
Now, since this act was passed well into the tax season 2021, millions of taxpayers already filed their returns and wrongfully paid tax on their unemployment income.
Due to this misfire, since around May/June of this year, the IRS has started to issue refunds to these taxpayers.
Conditions If An Amended Return is Necessary
However, there is a handful of you, who may need to file an amended tax return in order to claim your refund.
Specifically, if as a result of the excluded, non-taxable unemployment compensation, you then become eligible for deductions or credits not claimed on the original return…
…then you should file a Form 1040-X, or an amended return.
It can be a bit confusing to understand if you need to file an amended return.
So, take a close look at these categories to see if you fall in one of them and need to file an amended return to receive your refund:
1. You 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;
2. You 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;
3. You are now eligible for any other credits or deductions after the unemployment compensation exclusion. In this case, make sure to include any required forms or schedules with your amended return.
It might be difficult to know on your own if you fall into these categories, so make sure to confirm with your tax preparer if you need to file an amended return.
And don’t worry too much, the IRS has made it clear that they will be sending out refunds throughout the summer.
So, it is not too late to correct this information on your return.
Conditions If An Amended Return is Not Necessary
Now, for the majority of you, there isn’t any additional action you need to take to get your refund.
The reason why is that the IRS specifically states:
“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”
According to the IRS, you do not need to file an amended return if you fall into one of these categories:
1. You 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;
2. You 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;
3. You did not claim the following credits on your 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.
4. You 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.
Again, the majority of people do fall under these categories but it’s wise to confirm this information.
For those who do not need to file an amendment, the IRS has been automatically making adjustments to these returns and will issue refunds accordingly via direct deposit.
If you did not include direct deposit information on your original return, the IRS will be mailing you a check to the address listed on your return.
Also, if the IRS did make an adjustment to your return, they will send you a letter within 30 days of the adjustment to inform you of what kind of adjustment was made.
For the approximately 600,000 people who qualify for the exclusion but don’t receive a check directly…
…your adjustment went to some outstanding tax debt or used to offset other authorized debts you may have.
You will also be informed of this kind of adjustment via mail.
There you go – the latest unemployment tax refunds update!
We hope you found this post helpful to better understand what is going on with your money and tax refunds.
But if you need help with your specific tax situation, get in touch with us now! Our team of CPA tax experts is always ready to help you.