The IRS recently issued 430,000 refunds totaling more than $510 million to taxpayers who paid taxes on unemployment compensation excluded from income for tax year 2020.
Is unemployment income excluded from tax?
Per the American Rescue Plan, up to $10,200 of unemployment compensation paid in 2020 is excluded from income, meaning that you do not pay tax on it.
If your modified AGI is $150,000 or more, you can’t exclude any unemployment compensation.
How many taxpayers are impacted?
The IRS has identified over 16 million taxpayers who may be eligible for the adjustment. Some will receive refunds, while others will have the overpayment applied to taxes due or other debts.
So far, the IRS has issued over 11.7 million refunds totaling $14.4 billion. This latest batch of corrections affected over 519,000 returns, with 430,000 taxpayers receiving refunds averaging about $1,189.
The IRS plans to issue another batch of corrections before the end of the year.
How will you be notified?
Taxpayers who are affected will receive letters from the IRS via U.S. mail within 30 days of the adjustment, informing them of what kind of adjustment was made (refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.