About 40 million people received unemployment benefits in 2020.
Photo: John Guccione / Pexels
The IRS has already sent out nearly 68 million refunds this year. However, if you received unemployment compensation, you may have to wait a few more weeks to receive it because the tax agency has not announced an exact date, however. automatic refund could be applied from May.
The American Rescue Plan was enacted in March after the 2021 tax season got underway. This gave the Internal Revenue Service (IRS) multiple new tasks to handle in addition to processing 2020 tax returns.
The $ 1.9 trillion relief bill tasked the tax agency with sending $ 1,400 stimulus checks to eligible Americans, implementing a child tax credit that will send parents direct payments from July, along with numerous other tax breaks.
Those who received unemployment benefits during 2020 received a tax break of up to $ 10,200 in unemployment assistance that the IRS will have to apply retroactively to the 2020 tax returns already received. Near 40 million people received unemployment benefits in 2020, according to a report from the Century Foundation.
What do I have to do to request the $ 10,200 exemption?
If you are from the group of taxpayers who have not yet filed your 2020 tax return, you can claim the exemption at the time you file it. The IRS recommends that you file electronically and use the direct deposit option to get your refund faster. If you make less than $ 72,000 a year you can use the free IRS Free File tool.
However, the IRS had already submitted more than 42 million refunds before the American Rescue Plan became law, and more than 66 million taxpayers had submitted their 2020 tax return forms to the tax agency. This left people wondering what to do. The IRS has said that the agency will retroactively apply the decrease in taxes on unemployment compensation received in 2020.
The federal government requires states to offer recipients of unemployment assistance the option to have 10 percent of their weekly benefits withheld for federal taxes. in order to avoid a surprise tax invoice at the end of the year. However, with federal unemployment programs in place last year, some states did not offer the option.
The IRS has insisted that you have nothing to do to get back the money you paid for unemployment compensation taxes in 2020 and you should receive an automatic refund starting in May. Although the tax agency has not announced an exact start date, it will continue to process taxpayer returns until the summer.
The IRS will apply the unemployment benefit discount in two phases, starting with tax returns eligible for exclusion of up to $ 10,200 and then continuing for married couples who file jointly and are eligible up to $ 20,400 along with the more complex returns.
Related: What are the 13 states that still tax total unemployment insurance benefits and do not apply the IRS exemption
Track your refund
The IRS offers a couple of ways to check the status of your refund. You can use the online tool Where is my refund? and also download the IRS2Go application.
The IRS recommends reviewing your state tax return, as not all states have adopted the unemployment benefit tax break.
Remember that the deadline for filing your federal tax return was extended until May 17 due to the coronavirus pandemic.
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