What The 2020 Unemployment Tax Break Is About
The first thing to know is that refunds would only go to taxpayers who received jobless benefits last year and paid taxes on that money before the provision in the American Rescue Plan Act of 2021. The tax break is for those who earned less than $150,000 in;adjusted gross income;and for unemployment insurance received during 2020. At this stage, unemployment compensation received this calendar year will be fully taxable on 2021 tax returns.;
The $10,200 tax break is the amount of income exclusion for single filers,;not;the amount of the refund . The amount of the refund will vary per person depending on overall income, tax bracket and how much earnings came from unemployment benefits. So far, the refunds have averaged more than $1,600.;
However, not everyone will receive a refund. The IRS can seize the refund to cover a;past-due debt, such as unpaid federal or state taxes and child support. One way to know if a refund has been issued is to wait for the letter that the IRS is sending taxpayers whose returns are corrected. Those letters, issued within 30 days of the adjustment, will tell you if it resulted in a refund or if it was used to offset debt.;
If the IRS continues issuing refunds, they will go out as a direct deposit if you provided bank account information on your 2020 tax return. A direct deposit amount will likely show up as;IRS TREAS 310 TAX;REF. Otherwise, the refund will be mailed as a paper check to whatever address the IRS has on hand.;
How Do You Get A Refund
Most taxpayers who may have overpaid their taxes don’t need to do anything to collect a refund, according to the IRS. The agency said it is proactively adjusting taxpayers’ refunds and sending back money.
However, one group of people may need to file an amended tax return to get all the money they’re due. If a taxpayer has a dependent, and if excluding the unemployment benefits from last year’s total income puts the income below the cutoffs for the Earned Income Tax Credit, then they will need to file an amended return to claim that tax credit, the IRS said.;
That doesn’t apply to single taxpayers who become eligible for the EITC the IRS will adjust their returns automatically, the agency said.
The maximum income to claim the EITC is about $41,000 for a single parent of one child and $47,000 for a married couple. The limits increase with more children.
Victims Of Unemployment Fraud
Whenever the government starts sending checks, criminals will try to get their hands on some of that money. That’s certainly the case with the unemployment compensation tax refunds. The good news is that you won’t be punished if a crook uses your name and personal information to steal a tax refund from Uncle Sam.
So, for example, if you received an incorrect Form 1099-G for unemployment benefits that you didn’t receive, the IRS won’t adjust your tax return to add the unemployment compensation to your taxable income. You should still report the fraud to the state workforce agency that issued the incorrect form, though.
Don’t Miss: How Do I Track My Unemployment Card
Tax Refund Delay: The Latest On The Irs’ Backlog And How To Track Your Money
How long will it take the tax agency to get through its massive backlog? Here’s what we know.
If you see “IRS TREAS 310” on your bank statement, it could be your income tax refund.;
At the beginning of the month, the IRS announced it had 8.5 million unprocessed individual returns, including 2020 returns with errors and amended returns that require corrections or special handling. And refunds that usually take around 21 days to process are taking at least 120 days. Refund checks were expected to come this summer, but it’s nearly fall and the IRS hasn’t given an update to let taxpayers know when the money is coming.;
To add to that, the IRS has also been busy with stimulus checks, child tax credit payments and;refunds for tax overpayment;on unemployment benefits. The “plus-up” stimulus adjustments and the third advance monthly check of the child tax credit payment that went out today — could give families some financial relief, but an overdue tax refund would be an even bigger help.;
In most cases, taxpayers can only continue to practice patience — the tax agency isn’t easy to reach. The best solution is to track your refund online using the Where’s My Refund tool or check your IRS account. We’ll show you how. We can also tell you what to do if you received a “math-error notice” from the IRS. This story is updated frequently.;
What To Do To Receive The Unemployment Tax Refund
Some people claim to have received their unemployment refunds by direct deposit while many are still waiting for their money to be refunded. The American Rescue Plan made the first $10,000 or 20,000 for married couples filing jointly non-taxable income.
Taxpayers who submitted their taxes before March 20, 2021, are now entitled to an adjustment and perhaps a refund. More than 8.7 million unemployment compensation refunds have been issued by the IRS, totaling more than $10 billion, as per .
The first round of refunds went to individuals who filed the simplest taxes, which are defined as single taxpayers with no dependents. Refunds began to be issued in May and will be distributed in batches throughout the summer. People are waiting for their money because more complex returns take longer for the department to process.
Take note that the agencies were able to distribute a large batch of 1.5 million refunds averaging $1,686 from 2020 unemployment benefits just a few weeks ago, and additional checks are expected to be sent out to Americans this month.
President Joe Biden’s $1.9 trillion American Rescue Plan was able to waive federal tax on up to $10,200 in unemployment benefits, or $20,400 for married couples filing jointly, received by taxpayers last year, resulting in these refunds. According to the tax office, unemployment benefits are generally considered taxable income.
You May Like: What Time Does Nc Unemployment Direct Deposit
Refunds For Unemployment Compensation
If you’re entitled to a refund, the IRS will directly deposit it into your bank account if you provided the necessary bank account information on your 2020 tax return. If valid bank account information is not available, the IRS will mail a paper check to your address of record. The IRS says it will continue to send refunds until all identified tax returns have been reviewed and adjusted.
The IRS will send you a notice explaining any corrections. Expect the notice within 30 days of when the correction is made. Keep any notices you receive for your records, and make sure you review your return after receiving an IRS notice.
The refunds are also subject to normal offset rules. So, the amount you get could be reduced if you owe federal tax, state income tax, state unemployment compensation debt, child support, spousal support, or certain federal non-tax debt . The IRS will send a separate notice to you if your refund is offset to pay any unpaid debts.
How Much Will The Average Irs Unemployment Refund Be
It depends on your individual situation, but the IRS indicates that the average refund is around $1,600. Some will get more or less, but the average is based on what the IRS has left to process from 2020.
As of late-July over $10 billion in unemployment refunds had been sent out to more than 8.7 million people.
The IRS effort focused on minimizing burden on taxpayers so that most people wont have to take any additional action to receive the refund, the agency said. The IRS review means most taxpayers affected by this change will not have to file an amended return because IRS employees have reviewed and adjusted their tax returns for them. For taxpayers who overpaid, the IRS will either refund the overpayment or apply it to other outstanding taxes or other federal or state debts owed.
Recommended Reading: How To Earn Money When Unemployed
How Should You Contact The Irs For Help
The IRS received;167 million calls this tax season, which is four times the number of calls in 2019. And based on the recent report, only 7 percent of calls reached a telephone agent for help. While you could try calling the IRS to check your status, the agency’s;live phone assistance;is extremely limited right now because the IRS says it’s working hard to get through the backlog. You shouldn’t file a second tax return or contact the IRS about the status of your return.
The IRS is directing people to the;Let Us Help You page on its website for more information. It also advises taxpayers to get in-person help at Taxpayer Assistance Centers. You can;contact your local IRS office;or call to make an appointment: 844-545-5640. You can also contact the;Taxpayer Advocate Service if you’re eligible for assistance by calling them: 877-777-4778.;
Though the chances of getting live assistance are slim, the IRS says you should only call the agency directly if it’s been 21 days or more since you filed your taxes online, or if the;Where’s My Refund;tool tells you to contact the IRS. You can call: 800-829-1040 or 800-829-8374 during regular business hours.;
Unemployment Compensation Refund Checks
The IRS hasnt made an announcement on whether or not there will be checks. For the time being, its too early to say, as it only has been a day since the refunds were issued. As soon as the IRS makes a statement about checks, well keep you updated. In the meantime, you can check the refund status online through the Wheres My Refund tool.
One side note to keep in mind is that the refunds are sent automatically to taxpayers that the IRS has their payment information. If you dont have your bank account information with the IRS, youll get a refund check.
Also Check: Are Unemployment Benefits Delayed On Holidays 2020
Withholding From Unemployment Compensation
Again, the $10,200 exemption only applies to unemployment compensation received in 2020. So, to avoid a big tax bill when you file your 2021 return next year, consider having taxes withheld from any unemployment payments you receive this year.
Contact your state unemployment office to have federal income taxes withheld from your unemployment benefits. You may be able to use Form W-4V to voluntarily have federal income taxes withheld from your payments. However, check with your state to see if it has its own form. If so, use the state form instead.
What’s Causing The Massive Irs Backlog And Delays
Because of the pandemic, the IRS ran at restricted capacity in 2020, which put a strain on its ability to process tax returns and created a backlog. The combination of the shutdown, three rounds of stimulus payments, challenges with paper-filed returns and the tasks related to implementing new tax laws and credits created a “perfect storm,” according to a;National Taxpayer Advocate review;of the 2021 filing season to Congress.;
The IRS is open again and currently processing mail, tax returns, payments, refunds and correspondence, but limited resources continue to cause delays. The IRS said it’s also taking more time for 2020 tax returns that need review, such as determining;recovery rebate credit;amounts for the first and second stimulus checks — or figuring out earned income tax credit and additional child tax credit amounts.
Here’s a list of reasons your income tax refund might be delayed:;
- Your tax return has errors.
- It’s incomplete.
- Your refund is suspected of identity theft or fraud.
- You filed for the earned income tax credit or additional child tax credit.
- Your return needs further review.
- Your return includes;Form 8379;, injured spouse allocation — this could take up to 14 weeks to process.
You May Like: Can You File Bankruptcy On Unemployment Overpayment
Will The Irs Send Out Unemployment Tax Refunds This Fall Here’s What We Know
Millions of taxpayers remain in limbo without any updates or a timeline on refunds for 2020 unemployment benefits.
The IRS has sent 8.7 million unemployment compensation refunds so far.
Over summer, the IRS started making adjustments on 2020 tax returns and issuing refunds averaging around $1,600 to those who can claim a $10,200 unemployment tax break. The tax agency said adjustments would be made throughout the summer, but the last batch of refunds, which;went out to some 1.5 million taxpayers, was two months ago. No rounds of payments seem to have gone out in September, and now it’s fall.;
Here’s a recap of what those refunds are about. Since the;first $10,200 of 2020 jobless benefits; was made nontaxable income by the American Rescue Plan in March, taxpayers who filed their returns before the legislation and paid taxes on those benefits were due money back. And though;some have reported;online that their tax transcripts show pending deposit dates, others haven’t received any clues at all. Some are wondering how to get a live agent to ask with questions or if they should file an amended return. The IRS’;massive backlog of unprocessed returns;doesn’t help the matter.;
Most Dont Have To File An Amended Return
Most taxpayers;dont need to file an amended return;to claim the exemption. If the IRS determines you are owed a refund on the unemployment tax break, it will automatically correct your return and send a refund without any additional action from your end.;
The only reason to file an amended return is if the calculations now make you eligible for additional federal credits and deductions not already included on your original tax return, like the Additional Child Tax Credit or the Earned Income Tax Credit. If you think youre now eligible for deductions or credits based on an adjustment, the most;recent IRS release;has a list of people who should file an amended return.;
The average IRS refund for those who paid too much tax on jobless benefits is $1,686.;
Read Also: How To File Unemployment On Taxes
About 13 Million Americans In All Will Receive Tax Refunds Because Of A Provision In The American Rescue Plan Related To Unemployment Insurance Income
The American Rescue Plan allows people who received unemployment benefits — if theyre part of a household thats earned under $150,000 in annual gross income — to exclude up to $10,200 in unemployment benefits from their taxable income.;
- Email icon
- Print icon
- Resize icon
Americans who received jobless benefits after the pandemic closed businesses last year are finally starting to get the tax relief they were promised when the American Rescue Plan was signed into law in March.
The stimulus package allows them, if theyre part of a household thats earned under $150,000 in annual gross income, to exclude up to $10,200 in unemployment benefits from their taxable income.;
Without the American Rescue Plan, unemployed workers would have been on the hook to pay taxes on up to $24,000 worth of benefits collected in 2020, according to prior estimates made by Michele Evermore, a senior advisor on unemployment insurance at the U.S. Department of Labor.
The exclusion could trim roughly $1,000 to $2,000 from a households tax bill, according to some tax experts.
But because the $1.9 trillion stimulus package was passed a month before April 15, the usual deadline to file taxes, some 13 million unemployed Americans who filed their taxes early ended up overpaying, according to the Internal Revenue Service.
In total, some 40 million people collected unemployment benefits last year, according to research published by the Century Foundation, a progressive think-tank.
How To Get The Refund
If you are owed money and you’ve filed a tax return, the IRS will send you the money or use it to pay off other owed taxes automatically.
You typically don’t need to file an amended return in order to get this potential refund.
Instead, the IRS will adjust the tax return you’ve already submitted.
However, if you haven’t yet filed your tax return, you should report this reduction in unemployment income on your Form 1040.
The deadline to file your federal tax return was on May 17.
Recommended Reading: Can Llc Owner Collect Unemployment
When Will I Get The Refund
Unemployment tax refunds started landing in bank accounts in May and will run through the summer, as the IRS processes the returns.
The first phase includes the simplest returns, made by single taxpayers who didn’t claim for children or any refundable tax credits.
More complicated ones may then take longer to process.
In mid-July, the IRS issued 4million refunds, of which those by direct deposit landed in bank accounts from July 14.
Meanwhile, households who receive the cash refund by paper check could expect this from July 16.
Another batch of payments were then sent out at the end of July, with direct deposits on July 28 and paper checks on July 30.
The IRS didn’t announce any payouts for August and is yet to reveal the upcoming refund schedule too.
How Can You Use The Where’s My Refund Tool
To check the status of your 2020 income tax refund using the;IRS tracker tools, you’ll need to give some information: your Social Security number or Individual Taxpayer Identification Number, filing status — single, married or head of household — and your refund amount in whole dollars . Also, make sure it’s been at least 24 hours before you start tracking your refund.;
Using the IRS tool Where’s My Refund, go to the;Get Refund Status;page, enter your SSN or ITIN, filing status and exact refund amount, then press;Submit. If you entered your information correctly, you’ll be taken to a page that shows your refund status. If not, you may be asked to verify your personal tax data and try again. If all the information looks correct, you’ll need to enter the date you filed your taxes, along with whether you filed electronically or on paper.
The IRS also has a mobile app called;IRS2Go;that checks your tax refund status — it’s available in English and Spanish. You’ll be able to see if your return has been received, approved and sent. In order to log in, you’ll need some information — your Social Security number, filing status and expected refund amount. The IRS updates the data in this tool overnight, so if you don’t see a status change after 24 hours or more, check back the following day. Once your return and refund are approved, you’ll receive a personalized date by which to expect your money.;
Don’t Miss: Desncgov