The COVID-19 pandemic has had a significant impact on the economy, causing many people to lose their jobs. To help those who were unemployed during this difficult time, the government provided additional financial assistance through the CARES Act. This financial assistance included additional unemployment benefits that were subject to federal taxes. However, due to a recent change in the tax law, the IRS is now paying back unemployment taxes to those who have already paid. Here are the key points you need to know about the IRS unemployment tax refund.
What Is the Change in Tax Law That Led to the IRS Paying Back Unemployment Taxes?
The American Rescue Plan Act (ARPA) was signed into law on March 11, 2021. This legislation made the first $10,200 of unemployment benefits tax-free for those who earned less than $150,000 in 2020. However, many people had already filed their taxes and paid taxes on their unemployment benefits before this change in the law. As a result, the IRS has been working to automatically adjust these tax returns and provide refunds to those who have already paid taxes on their unemployment benefits.
Who Is Eligible for a Refund?
If you received unemployment benefits in 2020 and paid federal income taxes on those benefits, you may be eligible for a refund. However, not everyone is eligible. The refund only applies to those who earned less than $150,000 in adjusted gross income (AGI) in 2020. If you earned more than $150,000 in AGI, you will not be eligible for a refund.
Do you Need to File an Amended Tax Return to Get a Refund?
No, you do not need to file an amended tax return to get a refund. The IRS will adjust your tax return and send you a refund if you are eligible. If you have already filed your taxes and the IRS has not yet adjusted your return, you do not need to do anything. The IRS will send you a notice when your refund has been processed.
When Can You Expect to Receive Your Refund?
The IRS began issuing refunds in May 2021 and is expected to continue processing refunds through the summer. If you are eligible for a refund, you can check the status of your refund on the IRS website using the “Where’s My Refund?” tool.
Will the IRS Pay Interest on the Refunds?
Yes, the IRS will pay interest on refunds that are issued as a result of the ARPA tax law change. The interest will be calculated from the original due date of your tax return, which was April 15, 2021, for most taxpayers.
What If You Have Other Tax Issues?
The IRS may use your refund to settle outstanding tax debts or unpaid taxes if you have any. If this occurs, the IRS will notify you and provide a justification for why your refund was decreased or withheld.
What If You Already Filed an Amended Tax Return for Your Unemployment Benefits?
You do not need to take any further action if you have already filed an amended tax return for your unemployment benefits prior to the ARPA tax law change. The IRS will examine your amended return and make the necessary adjustments. The IRS will issue the refund following the adjustment if you have not already received one for your amended return.
What If You Did Not Originally Report Your Unemployment Benefits on Your Tax Return?
To claim the tax exemption, you might need to file an amended return if you did not initially disclose your unemployment benefits on your tax return. However, if your income is below the filing threshold, you may not need to file an amended return. The filing threshold for 2020 is $12,400 for single filers, $18,650 for the head of household filers, and $24,800 for married filing jointly filers. If your income is below these thresholds, you are not required to file a tax return.
What If You Received Unemployment Benefits from a State That Did Not Withhold Taxes?
If you received unemployment benefits from a state that did not withhold taxes, you may still be eligible for a refund if you paid taxes on your unemployment benefits at the federal level. However, you will need to file an amended tax return to claim the refund.
What If You Have Questions or Need Help?
You can get in touch with the IRS directly if you have any questions or need assistance with your tax return, or you can consult a qualified tax expert. To assist taxpayers in understanding their tax liabilities and navigating the tax filing process, the IRS website offers a variety of tools and resources.
The IRS paying back unemployment taxes is a significant development that can provide much-needed relief to those who have already paid taxes on their unemployment benefits. If you are eligible for a refund, you can expect to receive it in the coming months. However, it is important to understand the eligibility requirements and to be aware of any other tax issues that may affect your refund. If you have questions or need assistance, do not hesitate to reach out to the IRS or a qualified tax professional for help.