The American Rescue Plan Act, enacted on March 11, 2021, provided relief on federal tax on up to $10,200 of unemployment benefits a taxpayer had collected in 2020. This tax break was applicable for individuals and married couples whose modified adjusted gross income was less than $150,000. When can you expect your unemployment tax break refund?
Usually, unemployment benefits are taxable, but the act waived the tax due to the impact of the COVID-19 pandemic. As most people eligible for the break filed their tax returns before the act came into effect, the IRS had to initiate special tax refunds to eligible taxpayers.
The IRS started special refund payments in May 2020
The payments by the IRS started in May 2020 and have continued since. According to the latest update on Dec. 20, 2021, with a new section showing the status of unemployment compensation exclusion corrections, the IRS continues to review more complex returns and the process will continue into 2022. The agency is coping with a significant backlog due to the pandemic and staffing issues.
Unemployment tax refunds are delayed well into 2022
The IRS issued 11.7 million of these special refunds, totaling $14.4 billion. In a Nov. 2020 update, the IRS stated that it had identified over 16 million taxpayers who may be eligible for the adjustment. Some will receive refunds, while others will have the overpayment applied to taxes due or other debts.
Therefore, there are still thousands of people waiting for their unemployment tax refund, and no deadline has been announced. For now, watch for the letter, which should be sent within 30 days from when the corrections were completed. It will include the refund amount. Any overpayment will be applied to outstanding taxes or other federal or state debts owed.
The refund will go out as a direct deposit if you provided bank account information on your 2020 tax return. Otherwise, the IRS will mail a paper check to the address it has on hand. You won’t 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 also stated that most people don’t need to file an amended return to get the refund. But in some cases, you should. The latest updates to the IRS's frequently asked questions about the 2020 unemployment compensation exclusion cover amended returns.
Don’t expect a tax break on unemployment benefits for 2021
People who collected unemployment benefits in 2021 aren't eligible for a tax break. Whereas Congress passed the act in March 2021 for 2020, it's not expected to do so again this year. The U.S. economy has rebounded. While the labor market has yet to fully recover, claims for unemployment benefits have been falling. The national unemployment rate was 4.0 percent in Jan. 2022, which implies employment is improving.