Tax Refunds On 2020 Unemployment Benefits To Start In May

Americans who collected unemployment benefits in 2020 could begin receiving their tax refunds from the IRS this month.

Single filers are expected to receive their tax refunds this May, earlier than other groups. Married couples and those with complex tax returns may receive theirs by summer, CNBC noted.

It is unclear when the IRS will issue the tax refunds for couples in which only one spouse received the 2020 jobless benefits.

In general, unemployment benefits are treated as taxable income. However, President Joe Biden’s $1.9 trillion American Rescue Plan waived up to $10,200 in federal taxes from the 2020 unemployment benefits for Americans earning below $150,000 annually. This means some people who filed their taxes before the signing of the bill may have overpaid their taxes.

The IRS said in March that it's recalculating the tax refunds of those who reported unemployment compensation before the changes were made and would automatically refund the money. The agency expects to begin issuing the refunds this month.

“To help taxpayers, the Internal Revenue Service announced today that it will take steps to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan,” the agency’s announcement read.

“There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.”

The IRS will issue refunds in two phases. The first phase would focus on taxpayers eligible for the $10,200 exclusion from their federal taxable income.

The second phase of recalculation and issuance will focus on married couples filing jointly. Couples can wave up to $20,400 in tax on their 2020 unemployment benefits. The second phase will also recalculate refunds for people with “more complex tax returns.”

An estimated 40 million American individuals collected unemployment benefits last year, with an average amount of $14,000 in benefits, according to a report by The Century Foundation.