|4.6 million American taxpayers who claimed unemployment are due an income tax adjustment as part of the American Rescue Plan Act.|
|The IRS has begun sending out refunds totaling nearly $4 million in unemployment compensation overpayments.|
Generally, an individual’s gross income includes unemployment compensation. However, under the American Rescue Plan Act (ARPA) the first $10,200 of 2020 unemployment benefits are excluded from taxable income. In the case of a joint return, the $10,200 exclusion applies separately to each spouse. The act limits this tax-free benefit to households with adjusted gross income (AGI) of less than $150,000. The $150,000 limit applies to returns filed jointly, as head of household, or with single status. Many taxpayers had already filed their 2020 returns before the passage of ARPA. To ease the burden of filing amended tax returns, the IRS is reviewing forms prior to the law enactment to identify those who are due an adjustment. Overpayments will either be refunded or applied to outstanding taxes or other federal or state debts owed.
Refunds were issued by direct deposit beginning on July 14, followed by paper checks on July 16. For federal returns, most taxpayers do not need to take action unless the excluded unemployment compensation now qualifies you for other potential deductions or credits.
If you are one of the people who receives this most recent refund, you will be receiving a letter in approximately one month from the IRS. Once you have this letter, please contact your Bodine Perry advisor and we will evaluate the need to file amended state returns on your behalf.