IRS to Issue Tax Refunds on Unemployment Benefits Starting May

President Joe Biden signed in mid-March the American Rescue Plan, which waived federal tax on up to $10,200 of unemployment benefits received per person. The IRS has announced that they will start issuing refunds to eligible taxpayers in May. The refunds will be received by workers who had filed their tax returns before the COVID-19 relief bill amounting to $1.9 trillion was passed into law.

The agency will send the refunds in two phases, and the payments will continue into the summer. However, some taxpayers, particularly the single filers, will receive the refund sooner than others. According to the IRS, it may be around summertime before married couples, and those with complex tax returns will receive their refunds.

The American Rescue Plan effectively waived federal tax on up to $10,200 of unemployment benefits per person last year. The unemployment benefit is typically treated as taxable income. According to The Century Foundation, 40 million Americans received unemployment benefits in 2020. The average person received $14,000. Since the Great Depression, the COVID-19 pandemic created the worst unemployment crisis.

Many workers eligible for the tax waiver had already filed their tax returns by the time President Joe Biden signed the relief bill in mid-March. As a result, they may have overpaid their taxes. The IRS will automatically recalculate tax liabilities for those workers and will send out the refunds starting May.

“Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed,” according to an announcement made by the IRS. The refunds will be issued via direct deposit to taxpayers who selected that method when filing their tax returns. Others will receive their check through traditional mail.

The IRS will issue the refunds in two phases. First, to taxpayers eligible to exclude up to $10,200 of unemployment benefits from their taxable income. The second phase covers married couples who file a joint tax return, according to the IRS. Couples can waive tax on up to $20,400 of benefits (since each spouse can exclude up to $10,200 from their taxable income).