How to claim an unemployment tax refund and how to check the IRS payment status

The American Rescue Plan provided a significant tax break for those who received unemployment benefits during 2020, but some are having to wait for the payment.

How to claim an unemployment tax refund and how to check the IRS payment status

In March President Biden signed the American Rescue Plan into law, his first large-scale legislative response to the pandemic.

The $1.9 trillion package included programmes like the reformed Child Tax Credit and the third stimulus check, but also a considerable tax exemption for recipients of unemployment benefits.

An estimated 40 million people received unemployment benefits during the course of 2020 and the American Rescue Plan gives them a substantial tax break. The first $10,200 of jobless payments that they received last year will not be subject to tax.

Those who had already submitted their tax returns before the tax exemption was made official are now in line for a healthy tax refund.

How to claim your unemployment tax refund

The $10,200 tax-free entitlement will provide a considerable boost for those who received unemployment benefits last year and one that they will be eager to take advantage of. As mentioned, anyone who filed (and paid their taxes) before the measure was introduced is entitled to receive the money paid back in the form of a tax refund.

Fortunately, the IRS is taking care of the process so there is no need to file an amended tax return to get the refund. The IRS confirms that it will “determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.”

You only need to file an amended return if the recalculation makes you eligible for additional federal credits and deductions. If that is the case, you will need to file an amended tax return to trigger the additional payments.

How to track the status of your unemployment tax refund

With a potentially significant amount of money on its way in the form of a tax refund, many are anxious to see that payment land in their bank accounts as soon as possible. However as the IRS is attempting to oversee the tax refund process while distributing the third round of stimulus checks, delays are inevitable.

The tax authority have confirmed that they are not able to meet the 21-day target that they usually set for tax refunds, but there is a way to check on the status of your payment easily. The IRS’ online Where's My Refund? portal allows you to track the payment, you simply need to input the following information:

  • Your social security number or ITIN
  • Your filing status
  • The exact amount you are owed as a refund

The system is updated on a daily basis, so the IRS warn that it may take up to 24 hours for e-filers to see their status after submitting their tax returns. Anyone who used paper filing or filed their taxes by responding to an IRS Notice will experience longer delays.