Overpaid Unemployment Benefits Tax Refunds Are Coming
On May 14, the IRS announced that more than 10 million people who paid their unemployment benefit taxes are in line for receiving refunds. The payouts start this week.
The American Rescue Plan was approved in March, after millions of people had already filed their tax returns. Under the ARP, people who received up to $10,200 in unemployment benefits are excluded from paying taxes on the amount. Therefore, those who submitted their tax returns earlier that fall under this category are eligible for a refund. To address this change in legislation, the deadline for tax filing was extended until May 17, officially closing on Monday. This further disrupted an already complicated tax season, as the IRS was behind schedule due to understaffing and a severe backlog of paper tax returns.
The IRS is taking on this issue systematically, handling simple returns for single taxpayers first, such as those who didn’t claim refundable tax credits. More complicated returns will likely be finalized by the end of the summer.
People in the eligible category won’t need to take any action to receive their refunds. After the IRS’s review, taxpayers may receive a refund, a reduced balance due, or no change to tax upon revision.
Those who do get approved for a refund will either receive it via direct deposit - if their bank information is on their tax return - or as a check mailed to their address. The IRS recommends switching to direct deposits, available even to people still submitting paper returns, as your refund reaches your account more quickly. If you don’t have an account number the IRS can deposit to, it’s certainly worth getting at least a prepaid debit card at a nearby bank, as your funds will arrive much faster than they would by check.
However, if a person has outstanding federal debt, such as child support, past-due federal tax, or even some types of student loans, they may find their tax refund seized under the Treasury Offset Program (TOP) to repay these debts. The IRS will send a notice to those affected by the TOP explaining the adjustment of their returns.
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