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Taxpayers may Receive a Refund for Taxes paid on 2020 Unemployment Compensation

The IRS is reviewing tax returns filed before the American Rescue Plan of 2021 became law in March to determine the correct taxable amount of unemployment compensation and tax. For eligible taxpayers, this could result in a refund, a reduced balance due or no change to tax.

IRS efforts to correct unemployment compensation overpayments will help most affected taxpayers avoid filing an amended tax return. Some taxpayers will receive refunds, which will be issued periodically, and some will have the overpayment applied to taxes due or other debts. For some there will be no change.

The American Rescue Plan Act of 2021 excluded up to $10,200 in unemployment compensation per taxpayer from taxable income paid in 2020. Taxpayers should not have been taxed on up to $10,200 of the unemployment compensation. This is not the amount of the refund taxpayers will receive.

Other Adjustments The agency is also making corrections for the earned income tax credit, premium tax credit and recovery rebate credit affected by the exclusion.