How to receive your unemployment tax refund

Millions of Americans who received unemployment benefits in 2020 are awaiting their tax refund as the IRS adjusts their tax returns to include tax break.

How to Receive Your Unemployment Tax Refund

When the American Rescue Plan was enacted in March it included a $10,200 tax waiver per person on unemployment compensation received in 2020. Millions of Americans who had claimed unemployment assistance had already filed their tax return for last year before the tax break was enacted.

The IRS advised those taxpayers not to file an amended tax return, telling them that the agency would go back and do the recalculation to figure in the reduction of what those taxpayers owed. The easing of that burden on those individuals meant that they would have to wait a bit longer for their refund if they were expecting one.

When will the IRS send refunds for the unemployment compensation tax break?

The IRS announced earlier this month that the agency had begun the process of adjusting tax returns for those who had claimed unemployment benefits in 2020. Payments started going out to those taxpayers and the agency will continue to send payments weekly through the summer. The agency is processing those tax returns in two phases. The simplest returns to recalculate would be first, those from individual taxpayers who did not claim children or any refundable tax credits. The second phase will be for tax returns from married couples filing jointly and more complex returns.

What to know about the tax break on 2020 unemployment claims

The tax break on 2020 unemployment compensation allows taxpayers to exclude up to $10,200 per person. So, a married couple filing jointly could foreseeably get up to $20,400 subtracted from the jobless assistance they received last year, but each spouse would only be eligible for $10,200 of their own compensation. When the agency has finished the recalculation, the IRS said, “This could result in a refund, a reduced balance due or no change to tax (no refund due nor amount owed).”

The IRS advised taxpayers that refunds resulting from the tax waiver are subject to normal offset rules. So even if a taxpayer is due a refund, that money could be scooped up by the Treasury Offset Program (TOP), which can seize tax refunds to pay debts owed to federal or state agencies.

The IRS will be informing taxpayers of the corrections made to their tax return within 30 days of the adjustments. A separate letter will be sent if a refund is offset to pay unpaid debts.

How to check on your tax refund

The IRS hasn’t created a special portal specifically for those who received unemployment benefits and are having their tax return adjusted automatically. The Where’s My Refund? will not give you an up-to-date progress report of when your tax return will be processed, but you can check it from time to time to see if your refund has been issued.

The progress of all tax returns goes in three stages; Return Received, Refund Approved, Refund Sent. The Where’s My Refund? portal is updated on a daily basis, typically overnight.

The payment will arrive in the same way as other tax refunds are distributed, which depends on the information you provided on your latest tax return. Much like with the stimulus check payments, if you provided you bank account details on the 2020 tax return you will receive the money as direct payment to your bank. If not, the money will be sent as a paper check, mailed to your home address.