The Internal Revenue Service announced today that it has begun submitting special tax refunds due to approximately 13 million taxpayers paying taxes on unemployment benefits when they filed their 2020 tax returns this spring. More than 2.8 million of these refunds will come out this week, with the rest to follow in the coming weeks.
There is more cash reaching far more taxpayers – there are also premium tax credit refunds, supplemental stimulus payments, and child tax credit advance payments on the way. Look carefully at your bank account or mail. And keep records of payments for next year’s tax return.
Why the tax refunds for special unemployment benefits? In the American Rescue Plan, the March 19, 2021 Covid-aid package, Congress earned up to $ 10,200 of 2020 nontaxable unemployment benefits. That’s the same law that authorized Round 3 stimulus payments of $ 1,400. In general, unemployment benefits are taxable, including basic state benefits, as well as the additional federal pandemic benefits of $ 600 per week from the CARES Act. If you received unemployment benefits in 2020, you should have received a Form 1099-G showing the amount you were paid and the federal income taxes withheld. You do not need to request a revised form. Instead, the IRS is making automatic corrections based on the new $ 10,200 exclusion.
To date, the IRS has reviewed more than 3.1 million returns showing unemployment benefits, and more than 2.8 million have received refunds. Note: The $ 10,200 is the income exclusion amount, not the refund amount. Refund amounts will vary. For some taxpayers, there will be no changes, which means there will be no special refund. For others, the overpayment will be applied to taxes owed or other debts.
A change in your tax return can have a cascading effect of other changes. The IRS is also making corrections for the Earned Income Tax Credit, Premium Tax Credit, and Recovery Refund Credit affected by the unemployment benefits exclusion. Caution: Taxpayers who have qualifying children who become eligible for the Earned Income Tax Credit after the exclusion is calculated may have to file an amended return to claim new benefits. The IRS can adjust tax returns for those who are single with no children and who are eligible for the EITC. The IRS can also adjust tax returns where the EITC was claimed and qualifying children were identified.
The next set of these special refunds should come out in mid-June and the process will continue through the summer as the IRS reviews more complex returns for possible refunds. Expect a letter from the IRS within 30 days of the adjustment, with details about the adjustment, whether it be a refund, an IRS debt payment, or compensation for other debts.
The American Rescue Plan also suspended the requirement to repay advance payments in excess of the premium tax credit used to lower your monthly health insurance premiums. If you overpaid an APTC refund amount when you filed your 2020 tax return, the IRS will automatically refund this amount as well.
Meanwhile, the IRS is still sending “plus-up” stimulus payments for taxpayers who received payments based on their 2019 tax return earlier this year, but are eligible for a new or higher payment. In the two weeks ending May 26, the IRS shipped more than 900,000 of these Plus-up payments, worth more than $ 1.6 billion. In total, the IRS has made nearly 7 million of these supplemental payments this year.
And in July, the IRS will begin sending the first monthly payments of the Extended child tax credit to approximately 39 million households, covering 88% of children in the US The American Rescue Plan increased the maximum Child Tax Credit in 2021 to $ 3,600 for children under 6 and $ 3,000 per child for children between 6 and 17 years old. Eligible families will receive a payment of up to $ 300 per month for each child under 6 years of age and up to $ 250 per month for each child 6 years and older. Note: These payments are essentially an advance on the credit that you would otherwise take on your 2021 tax return due in 2022.
Still waiting for your 2020 tax refund? Check the IRS Where is my refund? tool. There were 18.2 million individual tax returns pending as of May 22, according to the May 28 update of IRS operations. Good news: the previous year’s payback backlog is down to 100,000 (on May 14 it was 600,000). Average refunds were $ 2,827, according to IRS filing statistics as of May 21.
If you have not yet filed your 2020 return (the deadline for most taxpayers was May 17, but the deadline was delayed for people in Oklahoma, Louisiana, Texas, Kentucky, Alabama, and Tennessee due to natural disasters ), check out these 17 tax tips for filing your 2020 tax return.