The IRS is distributing additional refund checks this week to approximately 1.5 million taxpayers who received unemployment benefits in 2020, meaning some Americans will soon have extra cash in their pockets.
These refunds are for taxes paid on unemployment compensation received last year. Typically, unemployment benefits are fully taxable. But the Biden administration's American Rescue Plan, passed in March 2021, exempts up to $10,200 in benefits from taxation for individuals and married couples who earned less than $150,000 in 2020.
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As a result, a lot of people who collected unemployment benefits in 2020 — even if it was only for a single week — are set to get additional cash relief.
According to the IRS, the average refund check for this round is $1,686. The agency has issued unemployment-benefit tax refunds to 8.7 million Americans since May and is continuing to do so as it reviews returns.
In most cases, taxpayers don't need to take any action to receive the unemployment-benefit tax exclusion, as refunds are being distributed automatically.
However, the IRS has said that some individuals and families may now be eligible for additional deductions and credits not claimed on their original returns. These include the following groups:
- Taxpayers who did not submit a Schedule 8812 to claim the Additional Child Tax Credit and who are now eligible for the credit
- Taxpayers who did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and who are now eligible for the credit
- Taxpayers who are now eligible for any other credits and/or deductions as a result of the adjusted income
Direct deposits of the tax refunds began July 28, and paper checks for unemployment tax refunds will be sent out July 30.
Child-tax credit change deadline
The first round of direct deposits and paper checks provided by the expanded child-tax credit went out nearly two weeks ago, and eligible families have until Aug. 2 to either change their direct-deposit information or unenroll from advance payments ahead of the August payout.
Families who fall into any of the following categories may consider opting for a lump-sum credit on their 2021 tax returns instead:
- Those who expect their 2021 income to be too high to qualify for the child-tax credit
- Those whose children are claimed on someone else's tax returns
- Those whose primary residence was outside the U.S. for more than half of 2021
To update or change your information and elections, head over to the Child Tax Credit Update Portal (opens in new tab) on IRS.gov.