The payments will be released starting in May under the Biden Administration’s stimulus plan approved last month in Congress.
Unemployment insurance recipients who overpaid taxes to the Internal Revenue Service (IRS) will receive refunds beginning in May as a result of an adjustment approved in the recently passed stimulus bill.
The Biden Administration’s “American Rescue Plan” grants an exemption from paying federal income taxes of up to $10,200 to individuals ($20,400 married couples) receiving unemployment assistance.
However, since the law was signed on March 11, more than a month after this year’s tax season began, some 66 million people had already filed their returns and some may be eligible for the benefit.
“The legislation, signed March 11, allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The legislation excludes only 2020 unemployment benefits from taxation,” the IRS said in a press release Wednesday.
The agency explained that it will process the corresponding refunds in two phases.
“For those who have already filed, the IRS will make these recalculations in two phases, starting with taxpayers eligible for the exclusion of up to $10,200. Then, the IRS will adjust returns for married taxpayers filing jointly who are eligible for the exclusion of up to $20,400 and others with more complex returns,” the IRS added.
On the need to file an amended return, the office indicated that the above would only apply to taxpayers who originally did not claim the “Earned Income Tax Credit” (EITC).
“The IRS may adjust the returns of those who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, they may now be eligible for an increase in the amount of the EITC which may result in a larger refund. However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits, but are now eligible because the exclusion changed their income. These taxpayers may also want to revise their state returns,” the agency explained.
According to the Bureau of Labor Statistics, more than 23 million U.S. workers nationwide claimed unemployment last year. For the first time, some self-employed workers also benefited from assistance as a result of the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs initiated under the CARES Act.
Unemployment recipients are required to file taxes as they are considered taxable income.