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It is unclear how many taxpayers will receive a refund and what proportion of them are married. According to the Century Foundation, around 40 million people received unemployment benefits in 2020.
It is also unclear when the second payment phase will begin.
“I am convinced that the IRS can do this in a relatively timely manner,” said Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center. “It’s just going to take more work to get to that point.”
Why the delay?
The delay for married couples is due to how lawmakers structured the tax break in the American rescue plan. This structure creates an additional step for the IRS.
The law allows anyone to exclude up to $ 10,200 in unemployment benefits from their federal taxable income by 2020. This means married couples can exclude up to $ 20,400 in total.
However, there are cases when married couples cannot get the full amount. This is where the complexity arises.
For example, suppose a married couple had a combined unemployment income of $ 20,400. At first glance, it seems like this couple is getting the maximum tax break.
However, on closer inspection, one spouse received $ 5,000 in benefits and the other received $ 15,400. That couple could have $ 15,200 exempt from tax ($ 5,000 for one spouse plus the $ 10,200 limit for the other) – not $ 20,400.
These income differences are not apparent from a joint tax return that summarizes the couple’s unemployment benefits, said Holtzblatt.
The IRS will likely need to refer to the tax forms sent by state employment offices to verify the unemployment income for each spouse and determine an accurate refund, she said. (However, it is unclear if this is the exact method the agency will use, she added.)