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IRS Begins Correcting Tax Returns for Unemployment Compensation Income Exclusion

The IRS will begin issuing refunds to eligible taxpayers who paid taxes on 2020 unemployment compensation that the American Rescue Plan later excluded from taxable income. The refunds for the simpler returns will begin in May and the more complex returns could take up until the end of the summer before a refund is issued. The reason that the IRS needs to calculate and issue these refunds is because the exclusion of $10,200 of unemployment compensation got signed into law after more than 10 million taxpayers already filed their tax returns. The IRS will be reviewing these returns to determine who is due a refund.

These corrections will be made automatically by the IRS so they do not want anyone filing amended tax returns for this unemployment exclusion. The IRS will issue the refunds via direct deposit if that was your method of payment when you filed your 2020 tax return. If no direct deposit information was given to the IRS, they will mail a paper check.

Please keep in mind that refunds will only be issued to eligible taxpayers, not everyone who received unemployment qualifies for this $10,200 income exclusion. The exclusion applies to taxpayers, single or married filing joint, with modified adjusted gross income of less than $150,000.

The new legislation also suspended the requirement to repay excess advanced payments of the Premium Tax Credit (excess APTC). If you made this payment when you filed your 2020 tax return, before the legislation was final, then the IRS will be issuing these refunds automatically as well.

Please consult your tax advisor on all the above information.

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