The Internal Revenue Service (IRS) has begun issuing refunds related to unemployment benefits received in 2020. These refunds are a result of a provision in the American Rescue Plan Act of 2021, which exempted the first $10,200 of unemployment benefits from federal income taxes for individuals with incomes below certain thresholds. The IRS is automatically issuing the refunds to eligible taxpayers, so no additional action is required. The refunds will be issued in the form of direct deposits or paper checks, and the IRS encourages taxpayers to file their 2021 tax returns as soon as possible to verify their eligibility.
IRS Unemployment Refund Eligibility
Eligible taxpayers who received unemployment compensation in 2020 may have overpaid their federal income taxes. The American Rescue Plan Act of 2021 allows a tax exclusion of up to $10,200 for these overpayments, resulting in potential refunds for affected individuals.
Eligibility Requirements
- Earned less than $150,000 during 2020
- Received unemployment benefits
- Filed a 2020 tax return without claiming the full $10,200 exclusion
Taxpayers who meet these requirements may be eligible for a refund from the IRS.
Exclusions
The tax exclusion does not apply to the following individuals:
- Those who can be claimed as dependents on someone else’s 2020 tax return
- Those with adjusted gross income of $150,000 or more
Refund Calculation
The refund amount depends on the following factors:
- Amount of unemployment compensation received
- Income earned
- Tax filing status
The IRS will automatically issue refunds to eligible taxpayers. If you have already filed your 2020 tax return, you do not need to take any action. However, if you have not yet filed, you should do so as soon as possible to claim this refund.
Taxable Unemployment Benefits
Normally, unemployment benefits are not taxable. However, for tax years 2020 and 2021, up to $10,200 of unemployment benefits may be excluded from taxable income. This exclusion applies to individuals with a modified adjusted gross income (MAGI) of less than $150,000 for single filers, $200,000 for head of household filers, and $250,000 for married couples filing jointly.
To determine if you qualify for the exclusion, you must complete the Unemployment Benefits Worksheet in the Form 1040 or 1040-SR instructions. If you do not qualify for the exclusion, you must report the full amount of your unemployment benefits on your tax return.
If you received unemployment benefits in 2020 or 2021, you should have received a Form 1099-G, Certain Government Payments, from the agency that paid you the benefits. This form will show the amount of unemployment benefits you received, as well as any federal income tax that was withheld.
If you did not receive a Form 1099-G, you can still report your unemployment benefits on your tax return. You will need to provide the following information:
- The name of the agency that paid you the benefits
- The amount of benefits you received
- The dates you received the benefits
If you are not sure whether your unemployment benefits are taxable, you should consult with a tax professional.
| Filing Status | Maximum Exclusion |
|---|---|
| Single | $10,200 |
| Head of Household | $10,200 |
| Married Filing Jointly | $10,200 per spouse |
State Tax Implications for Refunds
The IRS has begun issuing tax refunds to individuals who received unemployment benefits in 2020. However, it’s important to consider the potential state tax implications of these refunds.
In general, unemployment benefits are taxable at the federal level but may not be taxable at the state level. This means that while you may receive a refund from the IRS, you may still owe state taxes on the unemployment benefits you received.
To determine your state tax liability, you should consult with your state’s tax authority. Here are some key factors to consider:
- Whether your state has a personal income tax
- If your state taxes unemployment benefits
- The amount of unemployment benefits you received
- Your other income and deductions
You may need to file an amended state tax return to report the unemployment benefits you received and pay any additional taxes owed.
Here’s a table summarizing the state taxability of unemployment benefits in each state:
| State | Taxes Unemployment Benefits? |
|---|---|
| Alabama | No |
| Alaska | No |
| Arizona | Yes |
| Arkansas | No |
| California | Yes |
Timeline for Refund Issuance
The IRS began issuing unemployment refunds on May 17, 2021, and has continued to issue refunds on an ongoing basis since then. However, the timing of when an individual receives their refund depends on the method they used to file their taxes, as well as the method they have chosen to receive their refund.
The IRS has stated that it will continue to issue refunds throughout the rest of 2021. However, it is important to note that the IRS is still processing tax returns and issuing refunds for the 2020 tax year, so it may take some time for unemployment refunds to be issued to everyone who is eligible.
If you filed your taxes electronically and chose direct deposit, you can expect to receive your refund within 2 to 3 weeks of the IRS accepting your return.
If you filed your taxes electronically and chose to receive your refund by mail, you can expect to receive your refund within 4 to 6 weeks of the IRS accepting your return.
If you filed your taxes by mail, you can expect to receive your refund within 6 to 8 weeks of the IRS receiving your return.
It is important to note that these are just estimates, and the actual timing of when you receive your refund may vary depending on a number of factors, such as the complexity of your tax return and the volume of tax returns that the IRS is processing.
If you have not received your refund within the estimated time frame, you can check the status of your refund on the IRS website or by calling the IRS at 1-800-829-1040.
| Filing Method | Refund Method | Estimated Refund Timeframe |
|---|---|---|
| Electronically | Direct Deposit | 2 to 3 weeks |
| Electronically | 4 to 6 weeks | |
| By Mail | 6 to 8 weeks |
Well folks, that about wraps it up for today. We hope this article has helped shed some light on the IRS’s unemployment refund rollout. Remember to check back here in the future for any updates or new developments on this topic. Thanks for stopping by!