$10,200 unemployment tax break refund: how to know if I will get it

The Internal Revenue Service (IRS) said that it would start sending tax refunds to those eligible for the $10,200 unemployment tax waiver this week and continue through the summer. Depending on the complexity of your tax return will determine how long you have to wait to see your refund.

Millions have been waiting for the IRS to begin payments on the waiver that was included in the American Rescue Plan passed in March. The tax agency identified over 10 million taxpayers who reported jobless assistance on 2020 tax returns and filed before the covid-19 relief and stimulus bill passed.

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The IRS is recalculating tax returns with the unemployment tax break in two phases

The IRS informed taxpayers who might be eligible for the unemployment tax exclusion that the agency would automatically recalculate tax returns that had already been filed prior to the new provision in two phases. The simplest returns would be processed first and then the more complicated returns.

So those filed by single taxpayers qualifying for the $10,200 waiver will be in the first phase. If on their tax return they didn’t have any additional complexities such as claiming children or any refundable tax credits, they should receive their tax refund in the coming weeks. However, if they claimed dependents, tax credits or there is some other complicating factor for the IRS to recalculate the refund they could end up in phase two.

Phase two will include those more complex tax returns and married couples filing jointly who are eligible for the up to $20,400 exclusion. The reason is that the waiver for married couples filing jointly is not a simple subtraction of the whole amount but a $10,200 exclusion for each.

How is the unemployment waiver calculated for married couples?

The American Rescue Plan waived federal tax on up to $10,200 of unemployment compensation received in 2020 per person for those that earned less than $150,000, that rule also applies for married couples filing jointly. Although the couple could receive up to $20,400 if both collected jobless aid in 2020, only half that amount could be applied to each.

The IRS gives the example of one spouse having received $5,000 of benefits and the other getting $20,000. The total amount is $25,000 but the couple would not be entitled to the full $20,400 waiver but only $15,200. The spouse that got $5,000 in compensation gets the whole amount waived, but the second spouse only gets $10,200 of the $20,000.

In order for the IRS to make the adjustments it's likely that the agency will need to cross-reference the 1099 tax forms for unemployment income sent by state labor bureaus to verify how much each spouse received in jobless aid according to Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center talking with CNBC. But she added that the exact method the IRS will use is unclear.

The IRS says that when it has finished the first phase it will begin work on the more complex corrections but the agency gives no expected date when that will be.

How can I check my refund?

The IRS offers a couple ways that you can check the status of your refund. You an use the agency's Where's My Refund? online tool or you can download the IRS2Go app to check your refund status.