What to know about unemployment tax refunds, IRS timeline and more

If you received unemployment benefits during the pandemic last year, listen up. Based on new rules under the American Rescue Plan, workers who received unemployment benefits in 2020 cannot be taxed on that money (up to $10,200 for single filers)  like they would have been in previous years. Given that the new law came into effect after millions had already filed their taxes and claimed that money as income, those taxpayers are now eligible for a hefty break in the form of an IRS refund. 

The IRS has already begun sending the first round of these tax break refunds. The agency will continue to refund the money through the summer as it processes tax returns and reviews taxes paid on unemployment benefits. The agency said refund amounts will vary, and not every adjustment will result in a refund. 

We’ll explain the unemployment tax exemption here, and the details we’re still waiting to hear. You might also want to know about the status of the weekly $300 bonus unemployment payments as more states opt out of pandemic jobless benefits programs. If you’re wondering about other money you might be entitled to receive, here’s info about the enhanced child tax credit, how much you could get as a parent and information about the upcoming IRS child tax credit portals. This story has been recently updated.

Unemployment tax refund: 9 key things to know

The IRS started disbursing unemployment refunds to taxpayers who paid taxes on the benefit payments (treating it as income) when they filed their return earlier this year. Here’s what you can expect.

• The tax break is for those who earned less than $150,000 in adjusted gross income.
• Refunds started going out the week of May 10 and will run through the summer, as the IRS evaluates tax returns. More complicated returns could take longer to process. 
• If the IRS determines you are owed a refund on the unemployment tax break, it will automatically send a check.
• You do not need to file an amended return to claim the exemption. (Here’s how to track your tax return status and refund online.)
• Refunds will go out as a direct deposit if you provided bank account information on your 2020 tax return. Otherwise, the refund will be mailed as a paper check to the address the IRS has on hand.
• The IRS is doing the recalculations in two phases, starting with those who are eligible for the up to $10,200 tax break. It will then adjust returns for those married-filing-jointly taxpayers who are eligible for the up to $20,400 tax break.
• The IRS will send you a notice explaining the corrections within 30 days of when a correction is made.
• You will not be able to track the progress of your refund through the IRS Get My Payment tracker, the Where’s My Refund tool, the Amended Return Status tool or another IRS portal.
• The IRS can seize the refund to cover a past-due debt, such as unpaid federal or state taxes and child support.

Unemployment tax refund: what we still don’t know

The IRS has provided some information on their website about taxes and unemployment compensation. We are still unclear as to how to contact the IRS if there’s a problem with your tax-break refund. (Here’s what we know about contacting the IRS about stimulus check problems.) We’ve reached out to the IRS for clarification. 

For more, here’s everything to know about the child tax credit for up to $3,600 per child and who qualifies.