We’ve got great news for you if you received unemployment benefits in 2020, and filed your tax return on the early side: You may find a deposit in your bank account soon, or a check in your mailbox.
In June 2021, the IRS started issuing automatic refunds to Americans who filed their 2020 return and reported unemployment compensation before tax law changes were made by the new American Rescue Plan. The agency has sent out millions of refunds in early June, and will be sending even more refund checks throughout the summer and early fall 2021.
Why? It’s simple. The American Rescue Plan Act, which was enacted in March 2021, exempts up to $10,200 of unemployment benefits received in 2020 ($20,400 for married couples filing jointly) from federal income tax for households reporting an adjusted gross income (AGI) less than $150,000 on their 2020 tax return.
Because of this, for the 10 million people who filed their tax return before the plan became law, the IRS is reviewing those returns to determine if they were taxed the correct amount on their unemployment compensation – and sending them more money!
Think you might be eligible for a refund? You can use IRS's Interactive Tax Assistant tool to see if payments you received for being unemployed are taxable.
There are two phases to the IRS assessing impacted tax returns. First, they are looking at tax returns from single taxpayers who had relatively simple returns, such as those filed by people who didn't claim children as dependents or any refundable tax credits.
For the second phase, the agency is looking at and adjusting returns for more complicated returns, like married couples filing jointly and others with more complex returns.
Remember, this tax exemption applies only to unemployment benefits from 2020. So, if you receive unemployment compensation so far in 2021, you can expect to pay federal tax on the amount of unemployment you get.