If you filed your 2020 federal tax return before March 11, listen up — the IRS just issued some of the best news that it’s possible to receive from the tax agency. Namely, that millions of Americans are about to get an unexpected IRS refund.
Here’s why: Unemployment insurance benefits that taxpayers receive when they lose their job usually count as taxable income that must be reported on your next federal tax return. Taxpayers who received that UI benefit last year would no doubt have done so if they filed their 2020 return before the March date we noted above — and that’s why they might be getting a refund from the IRS. That’s because the American Rescue Plan — the stimulus legislation which President Biden signed into law on March 11 — excluded UI benefits of up to $10,200 from being taxed for 2020. And with that one stroke of the pen, Biden ensured that at least 10 million people, according to the IRS’s estimate, qualify for a reduced tax bill or even a refund.
The IRS has released its own official announcement explaining how all this will work. The refunds will be sent on a rolling basis going forward, similar to how the $1,400 stimulus checks stemming from the American Rescue Plan are being distributed in waves.
The first phase of these refunds is being sent out now, stemming from what the IRS has identified are the “simplest” tax returns. That includes returns where the taxpayers don’t have children and don’t claim any refundable tax credits.
“These corrections are being made automatically in a phased approach, easing the burden on taxpayers,” the IRS announcement reads. It continues: “The next phase will include the more complex tax returns which the IRS anticipates will take through the end of summer to review and correct.”
The IRS goes on to explain that the tax agency will issue these refunds by direct deposit for taxpayers who provided their bank account with their 2020 tax return. If no bank account information is available, these refunds will go out in the mail as paper checks, and the IRS says that it will continue sending out refunds until all the identified tax returns have been reviewed and adjusted.
Within 30 days of any correction having been made to your return, if this announcement includes you, the IRS will send out a notice explaining any corrections that were made. Keep that notice, in addition to reviewing your tax return after receiving the notice. Also important to note, the IRS adds that “these refunds are subject to normal offset rules, such as past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans). The IRS will send a separate notice to the taxpayer if the refund is offset to pay unpaid debts.”