July 13, 2021
Candace J. Dixon
The Internal Revenue Service announced today that it will issue another round of refunds this week to almost 4 million taxpayers who overpaid their taxes on unemployment compensation they received in 2020. They have identified about 4.6 million taxpayers who may be due an adjustment for this round. Of that number, around 4 million taxpayers are expected to receive a refund. The average refund is $1,265; some people will receive more and some will receive less.
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.
Refunds by direct deposit will begin July 14, and refunds by paper check will start July 16. The IRS previously issued refunds related to the unemployment compensation exclusion in May and June, and it will continue to issue refunds throughout the summer.
To Amend Or Not To Amend? That Is The Question. Here Is The Answer.
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. For those who overpaid, they will either refund the overpayment or apply it to other outstanding taxes or other federal or state debts owed.
Most people don't need to take any action, as in - don't call the IRS. However, if you are now eligible for deductions or credits not claimed on your original return as a result of the excluded unemployment compensation, you should file a Form 1040-X, Amended U.S. Individual Income Tax Return.
You should file an amended return if:
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
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
You are now eligible for any other credits and/or deductions not mentioned below. Make sure to include any required forms or schedules if you file an amended return.
You do NOT need to file an amended return if:
You already filed a tax return and did not claim the unemployment exclusion, because the IRS will determine the correct taxable amount of unemployment compensation and tax.
You 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.
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 for you and include it in any overpayment.
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.
People will typically receive letters from the IRS within 30 days of an adjustment informing them of what kind of adjustment was made (i.e. as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment. These letters should be kept with your tax records.