The IRS announced they have completed final corrections to 2020 tax filings for taxpayers who inadvertently overpaid their taxes on unemployment compensation they received that year.
Under the Biden Stimulus (ARPA) package, which funded another round of unemployment benefit extensions, there was a late provision added that provided a tax break on unemployment insurance (UI) benefits.
This tax break exempted the first $10,200 in unemployment benefits/compensation received in 2020 (for 2021 filings). For married couples, this amount would be $20,400.
The additional pandemic unemployment insurance income increased a tax filers taxable income (AGI on Form 1040), which essentially resulted in higher taxes. However due to laws passed under ARPA, the unemployment income should not have been counted as taxable income for 2020 taxes filed in 2021.
Nearly $15 billion in additional refunds are now being sent to taxpayers, many who who been waiting several years for the IRS to correct this mistake, after seeing several 60-day delay review notices.
According to the IRS, the average tax refund being paid is $1,232. Approximately 14 million returns were automatically corrected by the IRS, and over 12 million refunds payments were made.
How and When will I get the 2023 unemployment insurance taxes refund?
No action is needed from taxpayers and they should not file an amended return if they previously filed one claiming the exclusion.
The IRS will automatically calculate and process adjustments on Forms 1040 and 1040-SR, and notices explaining the adjustments have been sent to impacted taxpayers with 2020 tax filings.
While most tax payers will receive the full refund amount, others have had the refund applied to existing IRS taxes due or other debts.
Payments will be made via check or direct deposit, based on your latest tax filings.
EITC, CTC adjustments
This adjustment to account for the exclusion of unemployment income essentially meant taxpayers saw a reduction in their adjusted gross income.
This could have also increased their eligibility for other tax credits like the EITC and CTC, which the IRS has accounted for in the automatic adjustments and included in the latest round of refund checks.
If a taxpayer is eligible for the unemployment compensation exclusion and their account was not corrected by the IRS, they may need to file an amended 2020 tax return to claim the exclusion and any other tax credits they would qualify for with the lower AGI. But only do this after confirming your account was not correct (see your transcript).