According to the American Rescue Plan, if you received unemployment benefits in 2020, you have a tax exemption of up to $10,200 dollars or $20,400 dollars if you file jointly with your partner.
The IRS has already sent out almost 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 the automatic refund could be applied starting in May.
The American Rescue 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 starting in 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 2020 tax returns already received. Nearly 40 million people received unemployment benefits in 2020, according to a Century Foundation report.
What do I need to do to apply for the $10,200 exemption?
If you are in the group of taxpayers who have not yet filed your 2020 tax return, you can claim the exemption at the time you file. 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 IRS’s free Free File tool.
However, the IRS had already sent out more than 42 million refunds before the American Bailout Plan became law and more than 66 million taxpayers had sent the tax agency their 2020 tax return forms. This left people wondering what they needed to do. The IRS has said the agency will retroactively apply the tax abatement on unemployment compensation received in 2020.
The federal government requires states to offer unemployment aid recipients the option of having 10 percent of their weekly benefits withheld for federal taxes to avoid a surprise tax bill at the end of the year. However, with the federal unemployment programs put in place last year, some states did not offer the option.
The IRS has insisted that you have no business getting back your money you paid for unemployment compensation taxes in 2020 and 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 refunds through the summer.
The IRS will apply the unemployment benefits rebate in two phases, starting with exclusion-eligible tax returns up to $10,200 and then continuing married couples filing jointly who are eligible for up to $20,400 along with more complex returns.
Track your refund
The IRS offers a couple of ways to check the status of your refund. You can use the online Where’s My Refund? tool and also download the IRS2Go app.
The IRS recommends checking your state tax return, as not all states have adopted unemployment benefits tax relief.
Remember that the deadline for filing your federal income tax return has been extended to May 17 due to the pandemic.