Those Americans who received unemployment benefits in 2020, and who have filed a 2020 tax return, may be getting sizeable refunds soon.
This month will see the first wave of refunds arrive for 7.3 million Americans eligible for tax refunds as part of a tax break of up to $10,200 included in March’s American Rescue Plan. This tax break is available for those Americans who paid taxes on unemployment checks received in 2020 as part of coronavirus pandemic relief efforts. Typically, unemployment compensation is considered taxable, but the credit makes it so that money is not counted as earned income for the year.
Important to note is that the $10,200 credit only applies to those individuals with an adjusted gross income (AGI) of less than $150,000. Those with an AGI of more than $150,000 will not be able to exclude any unemployment compensation. In addition, the $10,200 tax credit applies only to unemployment benefits received in 2020, and excludes benefits received in 2021.
Along with the $10,200 tax credit for unemployment benefits, the American Rescue Plan also included an extension of federal unemployment benefits of $300 per week through September 6. These payments have come under fire recently, with some critics arguing that the payments disincentivize people from looking to reenter the workforce and that they likely contributed to April’s poor jobs numbers. As a result, some states have ended their participation in the program early.
The IRS has previously said that refunds paid out as part of the $10,200 unemployment benefits tax credit will be shipped out in two parts, with married couples who filed jointly and who are eligible for such a refund likely to be part of the second phase. According to the IRS, the refunds will be sent automatically to eligible filers, though it will need to reexamine returns filed before the legislation was passed in March; this may mean that some early filers will need to submit amended returns.
Many Americans should expect delays in receiving their refunds this year as the IRS works through a backlog of unprocessed returns and continues to distribute stimulus payments to eligible Americans. This year’s tax deadline has been extended to May 17, and in addition to the $10,200 unemployment tax credit there are a number of important benefits attached to the filing of 2020 tax returns that many Americans may be eligible to take advantage of.
Eli Fuhrman is a contributing writer for The National Interest.