Many Americans are wondering if they are eligible to receive a tax refund for unemployment funds received in 2020 under the $10,200 exemption contained in the “American Rescue Plan”.
Last year, more than 40 million U.S. taxpayers qualified for unemployment benefits, according to the U.S. Department of Labor.
However, not all of them will receive the refund.
You had to report your unemployment income to the IRS
The first detail to consider is that in order to receive a payment back from the Internal Revenue Service (IRS) under the tax exemption, the person had to have reported that income to the agency.
A Jackson Hewitt survey found that 38% of Americans who receive these benefits are unaware that the money is taxable.
In other cases, benefits do not meet their obligation even though they know it is taxable income.
Must have earned $150,000 or less
Another point to note is that the exclusion applies to Americans who earned less than $150,000 in adjusted gross income.
“You are eligible to exclude unemployment compensation if you received it in 2020 and your modified adjusted gross income (AGI) is less than $150,000. Modified AGI for purposes of qualifying for this exclusion is your 2020 adjusted gross income minus the total unemployment compensation you received. This limit remains the same for all tax states, regardless of whether you are married filing a joint tax return (it does not double to $300,000),” the IRS explained in another post on its website.
That is, in the case of married couples, they can exclude up to $20,400 or $10,200 for each spouse.
If your income exceeded the above threshold, you will be required to pay the full amount of tax due.
It is important to clarify that the $10,200 is the maximum amount that can be excluded when calculating taxable income; it is not the amount of refund the individual will receive.
According to Elizabeth Pancotti, policy director for Employ America, a progressive think tank in Washington, D.C., any American who has received more than $10,200 in benefits should get back at least $1,200.
Pay could be seized for outstanding debts
A third major issue in the discussion is that the IRS’s assessment or review of tax returns will not always result in a refund.
The IRS has identified some 13 million taxpayers who may be eligible for adjustment. But, the above does not mean that all will receive it.
In cases of outstanding debts owed to the IRS and other entities, payment could be garnished.
“These refunds are subject to normal offset rules. Past-due federal taxes, state income tax, state unemployment compensation debts, child support, spousal support or certain federal non-tax debts, such as student loans, will be deducted. The IRS will send a notice to the taxpayer if the refund is offset to pay unpaid debts,” the IRS said.
The office will send letters to taxpayers within 30 days of the review to advise whether or not a refund was issued.
Refund mailings will extend through the end of summer.
By this time, the IRS is supposed to be processing a new batch of refunds. The IRS said in a statement on June 4 that it will send new payments to Americans under the tax-exempt status by the middle of this month.
To date, the IRS has reviewed more than 3.1 million returns and issued about 2.8 million refunds.
The agency conducts the review of returns and mailing of refunds in two phases, with the simplest tax returns first. This process will run through the end of summer.