Did you pay taxes on 2020 unemployment compensation?
Posted on July 28, 2021
If so, be on the lookout for a letter of explanation from the IRS. Due to the 2021 American Rescue Plan Act (ARPA), the Internal Revenue Service is refunding more than 2.8 million to taxpayers who paid taxes on 2020 unemployment compensation.
- To date, the IRS has reviewed over 3.1 million returns, with more than 2.8 million receiving refunds.
- The IRS unemployment compensation overpayments will help most affected taxpayers avoid filing an amended tax return.
- Your IRS letter will explain your individual refund. Some taxpayers will receive refunds, and some will have the overpayment applied to taxes due or other debts.
- For some taxpayers, there will be no change.
TEIPEN CPAs explain the fine print:
Last month, the IRS began its review of tax returns filed prior to the enactment of ARPA to identify the excludible unemployment compensation.
ARPA excluded up to $10,200 in unemployment compensation per taxpayer paid in 2020. Although $10,200 is the maximum amount that can be excluded when calculating taxable income, it is not the amount of refunds.
The IRS also is making corrections for the Earned Income Tax Credit, Premium Tax Credit and Recovery Rebate Credit affected by the exclusion. TEIPEN CPA Group will provide details as they are available.
What if you paid 2020 taxes on unemployment plus had qualifying children who become eligible for EITC after the exclusion was calculated? You may have to file an amended return to claim any new benefits.
The review of returns and processing corrections will continue during the summer as the IRS continues to review the simplest returns and then turns to more complex returns.
Look for a letter from the IRS, informing you of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.
No letter received? Unsure of your 2020 tax situation? We can help. Give us a call to help you sort through the particulars of your 2020 and 2021 taxes.