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The 2020 unemployment benefit tax refund is slated to begin this month.
But some taxpayers – namely individual filers – will get the money sooner than others.
It may be summer before other groups, like married couples and those with complex tax returns, get their refunds, according to the IRS.
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Unemployment benefit is usually treated as taxable income. The American Rescue Plan waived federal taxes on up to $ 10,200 per person in unemployment benefits collected last year.
The Covid pandemic caused the worst unemployment crisis since the Great Depression. According to The Century Foundation, around 40 million Americans received unemployment benefits in 2020. The average person got $ 14,000.
However, many workers eligible for the tax break had already filed their tax returns by the time President Joe Biden signed the $ 1.9 trillion Covid relief bill in mid-March – about a month after the start of the tax season.
They may have overpaid their taxes as a result.
Now the IRS will automatically recalculate the tax liability for these workers and expect to start paying refunds in May.
“Any resulting overpayment of taxes will either be refunded or applied to other outstanding taxes owed,” the agency said in an announcement.
An agency spokesman has not given a start date.
Refunds in two phases
The IRS will issue refunds in two phases. It begins with taxpayers eligible to exclude unemployment benefits up to $ 10,200 from their federal taxable income.
The second phase involves married couples filing a joint tax return, according to the IRS. Couples can waive benefits of up to $ 20,400 (as each spouse can exclude up to $ 10,200 from their taxable income).
It is unclear whether the first payment phase will include married couples in whom only one spouse received unemployment benefit, or whether these individuals will fall into the second round.
The latter phase also includes “others with more complex tax returns,” according to the IRS, who are expected to issue refunds in the summer.
The agency has not returned a request for clarification.
Taxpayers with a modified adjusted gross income of $ 150,000 or more are not eligible for a tax break. (The total does not include unemployment benefits.) The income threshold is the same for single and married applicants.
Changed tax returns
In some cases, taxpayers will need to file an amended tax return (Form 1040x) in order to receive their full refund.
This is the case when the unemployment tax break – which lowers federal taxable income – qualifies someone new for a tax credit or deduction like the Earned Income Tax Credit.
This can leave taxpayers eligible for a larger total refund, but the IRS doesn’t automatically calculate that amount.
Additionally, some states that have passed the American Rescue Plan’s tax break for benefits require taxpayers to file an amended state return in order to receive a state refund.