July 28, 2021
Candace J. Dixon
The Internal Revenue Service reported that 1.5 million people will receive refunds related to the unemployment compensation exclusion averaging $1,686 by direct deposit beginning July 28 and by paper check starting July 30.
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.
The IRS has issued 8.7 million unemployment compensation refunds totaling $10 billion since May, and will continue reviewing and adjusting tax returns this summer so that most people won’t have file an amended return to receive the refund. They will either refund any overpayment or apply it to other outstanding taxes or other federal or state debts owed. They started with the simplest tax returns and are now reviewing more complex returns. The average refund amount is higher in this fourth round because they included an adjustment to the Advance Premium Tax Credit (APTC).
You do not need to file an amended return if 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.
have an adjustment that will result in an increase in any non-refundable or refundable credits reported on the original return because of the exclusion.
did not claim the Recovery Rebate Credit, Earned Income Credit (with no qualifying dependents), or the Advance Premium Tax Credit on your tax return but are now eligible because of the unemployment exclusion. The IRS will calculate the credit and include it in any overpayment.
are married, filed a joint return and live in a community property state and you entered an exclusion amount less than what it should have been on Schedule 1, line 8; the IRS will recalculate your exclusion amount and adjust your return for the difference.
Although most people don't have to take any action to receive the refund, you should file Form 1040-X, Amended U.S. Individual Income Tax Return if you become eligible for deductions or credits not claimed on your original return as a result of the unemployment compensation exclusion. Make sure to include any required forms or schedules.
You should file an amended return if you:
did not submit a Schedule 8812 with your 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 your 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.
People typically receive letters from the IRS informing them of what kind of adjustment was made (refund, payment of IRS debt payment, or payment offset for other authorized debts) and the amount within 30 days of the adjustment.
Additional Resources: