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The IRS will begin issuing tax refunds in May to Americans who have filed their returns without demanding a new break on unemployment benefits, the federal agency said on Wednesday.
The American Rescue Plan waived federal tax on up to $ 10,200 in unemployment benefits, per person, received in 2020. Households with incomes of $ 150,000 or more are not eligible for the reduction tax.
President Joe Biden signed the $ 1.9 trillion relief bill during tax season on March 11.
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Taxpayers eligible for the tax break have questioned whether they should file amended tax returns to claim the benefit. The IRS has advised taxpayers not to file an amended return, saying it is in the process of devising a workaround.
The agency confirmed on Wednesday that it will automatically issue refunds to eligible taxpayers.
“Because the change occurred after some people filed their taxes, the IRS will take action in the spring and summer to make the appropriate change to their return, which may result in a refund,” the IRS said. agency. “The first repayments are expected to be made in May and will continue through the summer.”
The IRS will do a two-step recalculation for those who have already filed their taxes.
The agency will begin with eligible taxpayers on a break on $ 10,200 in unemployment benefits. The IRS will then adjust the returns of married couples who file a joint tax return, who qualify for tax relief on up to $ 20,400 in benefits, and others with more complex tax returns.
Workers may still owe state taxes on their benefits. More than a dozen states were not offering tax relief on benefits as of this week.
About 40 million Americans collected unemployment benefits last year, according to the Century Foundation. The average person received assistance of $ 14,000.
The IRS is working to determine how many workers affected by the tax change have already filed their income tax returns.
Taxpayers may need to file an amended return if the tax break makes them newly eligible for additional federal credits and deductions that were not already included on the original tax return, the IRS said.
For example, unemployment tax relief may make some people newly eligible for the earned income tax credit. Taxpayers who did not claim the credit on their original return must file an amended return to obtain it. They may also want to review their state income tax returns, the IRS said.
People who claimed a tax credit or deduction on their original federal return, but now qualify for greater tax relief due to the unemployment exemption, do not have to file an amended return – the IRS can adjust it for them.