Personal finance

The IRS building in Washington.
Kent Nishimura | Los Angeles Times | Getty Images

The IRS has issued tax refunds to 12 million people eligible for a tax break on unemployment benefits received in 2020, when the pandemic caused joblessness on a scale unseen since the Great Depression.

The refund payments — which totaled $14.8 billion — are the result of the American Rescue Plan Act of 2021. The law waived federal tax on up to $10,200 of unemployment benefits per person.

However, President Joe Biden signed the law in March 2021, after many households had already filed their tax returns. As a result, millions of them effectively overpaid their federal taxes and qualified for relief.

The IRS said Friday it had completed correcting those tax overpayments for qualifying individuals. The average tax refund associated with those corrections was $1,232.

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In total, the agency corrected 14 million tax returns, the agency said. Taxpayers who didn’t get refunds as a result of the correction may have had the overpayment applied to taxes due or other debts, for example. The IRS mailed letters informing these taxpayers of the corrections and advised keeping them with their tax records.

Taxpayers with income of $150,000 or more were not eligible for relief.

Complex returns delayed relief for some

The IRS started issuing the correction refunds in May 2021. Relief was delayed for people with more complex tax returns; these included joint returns filed by married couples in which each spouse received unemployment benefits in 2020, for example.

The federal tax waiver made some households eligible for other income-dependent tax breaks, like the earned income tax credit, child tax credit and the recovery rebate credit (more commonly referred to as a “stimulus check”). Many of the adjustments included such corrections, according to the IRS — another complexity that contributed to delays.

Taxpayers eligible for the unemployment tax break whose account was not corrected by the IRS may need to file an amended 2020 tax return to claim it and any applicable tax credits they may qualify for due to that relief, the IRS said.

However, taxpayers shouldn’t file an amended return if they already filed one claiming the tax break, the IRS said. The agency directed taxpayers to an online FAQ related to the unemployment waiver if they have questions.

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