Taxpayers Who Paid Taxes on Unemployment Compensation Receiving Refunds

The IRS began issuing refunds this week to taxpayers who paid taxes on unemployment compensation.

balance-due noticesThe IRS has strived to correct unemployment compensation overpayments, which is expected to help affected taxpayers avoid filing an amended tax return. Approximately 13 million taxpayers are expected to receive refunds, which will be issued periodically, and some will have the overpayment applied to taxes due or other debts.

The American Rescue Plan excluded up to $10,200 in unemployment compensation per taxpayer paid in 2020. The $10,200 is the maximum amount that can be excluded when calculating taxable income; it is not the amount of refunds.

The IRS also is making corrections for the Earned Income Tax Credit (EITC), Premium Tax Credit and Recovery Rebate Credit affected by the exclusion. Taxpayers who have qualifying children and who become eligible for EITC after the exclusion is calculated may have to file an amended return to claim any new benefits. The IRS can adjust tax returns for those who are single with no children and who become eligible for EITC. The IRS also can adjust tax returns where EITC was claimed and qualifying children identified.

The IRS plans to issue the next set of refunds in mid-June.

Taxpayers will receive letters from the IRS within 30 days of the adjustment notifying them of what kind of adjustment was made (such as a refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.

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