Early tax filers who are owed money because of a last-minute tax break on 2020 unemployment benefits should start checking their bank accounts for refunds from the IRS.
The IRS said Friday afternoon it will begin issuing refunds this week, and they will come in batches throughout the summer. More than 10 million people filed their 2020 tax returns before the tax break was enacted in March—mid-tax season, according to the agency.
Although unemployment benefits are typically considered taxable income, under the American Rescue Plan, the first $10,200 in benefits taxpayers collected last year are excluded from taxable income. Last year claims for unemployment insurance surged after the government shut down all but essential businesses for months to slow the spread of COVID-19. For the first time, many self-employed workers qualified for the benefits too.
Those with bank account information on file with the IRS will get their refunds via direct deposit, and others will receive paper checks, the IRS said. The agency had previously announced the refunds would be automatic and would start in May, but didn’t give specific timing.
This first phase of refunds includes single taxpayers who had the simplest tax returns (no children claimed, for instance.) The next phase will include the more complex tax returns including married couples filing jointly. Along with any refunds that may be due, taxpayers will receive a notice explaining the changes within 30 days of when the correction is made. Besides refunds, the correction could reduce a balance due or require no change, the IRS said.
As part of the recalculations, the IRS will automatically correct any Earned Income Tax Credit without qualifying children and Recovery Rebate Credits. But if taxpayers are newly eligible for some income-based tax credits they didn’t claim on their original return, they should file an amended return, the IRS said.