Unemployed people who overpaid taxes will get refunds starting in May, IRS says
Unemployed Americans who filed their taxes early this season and may have overpaid can expect a refund starting in May, the government said Wednesday.
Under the American Rescue Plan, up to $10,200 in unemployment benefits for single people (and $20,400 for married couples) is exempt from federal income tax. But the law was signed March 11 — more than a month after tax-filing season started and some 66 million people had already filed their tax returns.
For those taxpayers who already filed and received unemployment benefits last year, "the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund. The first refunds are expected to be made in May and will continue into the summer," the agency said Wednesday.
The IRS will first amend the returns of single taxpayers, followed by married couples and "others with more complex returns," the agency said.
Most taxpayers will not need to file an amended return to get back tax they overpaid on unemployment income, the IRS said.
However, taxpayers will need to amend last year's return if leaving out $10,200 in unemployment income would make them newly eligible for tax credits, the agency said.
For instance, a single parent of one could get $3,584 back on last year's taxes by claiming the Earned Income Tax Credit — as long as their income was below $41,756 last year. If a person made $43,000 last year and part of their income came from unemployment benefits, they would need to file an amended return for the 2020 tax year to show the lower income total that would allow them to claim the credit, the IRS said.
The IRS also noted that if a person has outstanding tax debts, any refund they'd get under the new laws could be "applied to other outstanding taxes owed."
Record-breaking numbers of Americans received jobless aid last year after the coronavirus pandemic sent the economy into a tailspin starting in February. At one point, 33 million people, or one-fifth of the U.S. workforce, was receiving some sort of jobless assistance.