IRS is sending more than 2.8 million refunds to people who paid taxes on unemployment benefits

  • If you received unemployment benefits last year, you may be eligible for a refund from the IRS.
  • The first $10,200 inbenefit income is free of federal income tax, per legislation passed in March.
  • The IRS is starting to send money to people who fall in this category, with more refunds slated to arrive this summer.

Federal refunds are on the way to more than 2.8 million people who paid taxes on unemployment benefits that no longer apply due to changes made by the American Rescue Plan Act.

The law, passed by Congress in March, excludes the first $10,200 of unemployment benefits from household income for those who earned less than $150,000 in adjusted gross income in 2020.

Because tax season was already underway when that change happened, some people may be due money. Others who owe taxes or other debts may have the money applied to those balances instead.

Exactly how much each taxpayer will get may vary.

To date, the IRS has determined that 13 million people may be eligible for the adjustment.

The tax agency has so far reviewed more than 3.1 million tax returns, of which more than 2.8 million were eligible for refunds.

The next set of refunds is due to go out in the middle of June, while the review process will continue into summer.

Those whose returns are adjusted will receive a letter from the IRS to inform them of the change and the amount.

The IRS is also reviewing returns for other tax credits to see if they are also affected by the exclusion. That includes the earned income tax credit, premium tax credit and recovery rebate credit.

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For the earned income tax credit, the IRS will adjust returns for those who are single and have no children and become eligible for the credit. It will also adjust returns where the earned income tax credit was claimed and qualifying children were included.

However, those who become eligible for the earned income tax credit after the unemployment income tax exclusion who have qualifying children may need to file an amended return in order to get their benefits, the tax agency said.  

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