IRS Issues Nearly $12 million in Refunds Related to Completion of 2020 Unemployment Compensation Corrections
The American Rescue Plan Act of 2021, which became law in March 2021, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations, and up to $10,200 for each spouse if married filing joint. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.
The IRS recently completed the final corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation received in 2020. To ease the burden on taxpayers, the IRS took steps to review the Forms 1040 and 1040SR that were filed prior to the law’s enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax. The IRS corrected approximately 14 million returns resulting in nearly 12 million refunds totaling $14.8 billion, with an average refund of $1,232.
Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed a letter to these taxpayers, which should be kept with tax records, to inform taxpayers of the corrections.
Many of the adjustments included corrections to the:
- Earned Income Tax Credit
- Recovery Rebate Credit
- Additional Child Tax Credit
- American Opportunity Tax Credit
- Premium Tax Credit
- Advance Premium Tax Credit
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 applicable non-refundable or refundable credits impacted by the exclusion. Taxpayers should not file an amended return if they previously filed one claiming the exclusion. Taxpayers can view 2020 tax records in their Online Account or request that a 2020 tax account transcript be mailed.
For more information about this, including eligibility requirements, taxpayers should read the 2020 Unemployment Compensation Exclusion FAQs on IRS.gov.
For all taxpayers that do need to amend tax year 2020 Forms 1040 and 1040-SR, Form 1040-X, Amended U.S. Individual Income Tax Return, our professionals at RTW Xxact are available to assist you. Forms can be filed electronically with tax filing software. Contact us today at buz@rtwxxact.com.
