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April 02, 2021 at 12:50 PM
What You Need to Know
- The American Rescue Plan exempts some unemployment benefits from taxes.
- Taxpayers don't need to file an amended return unless the change qualifies them for additional tax benefits.
- Bureau of Labor Statistics found that over 23 million U.S. workers nationwide filed for unemployment last year.
The Internal Revenue Service plans to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan.
The legislation, signed March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers, the IRS explains.
The legislation excludes only 2020 unemployment benefits from taxes.
“Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund,” the IRS said.
The first refunds are expected to be made in May and will continue into the summer.
For taxpayers who already have filed and figured their tax based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation and tax.
“Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed,” the IRS said.
For those who have already filed, the IRS will do these recalculations in two phases, starting with those taxpayers eligible for the exclusion of up to $10,200.
