unemployment benefits

For individuals who overpaid taxes on unemployment benefits they received in 2020, the Internal Revenue Service recently finished the final adjustments to their tax year 2020 accounts.

The American Rescue Plan Act of 2021, which was signed into law in March 2021, exempted up to $10,200 in 2020 unemployment benefits (or up to $10,200 for each spouse if married filing jointly) from taxable income calculations. Individuals and married couples with modified adjusted gross incomes under $150,000 qualified for the exclusion.

The IRS took action to identify individuals who had already reported unemployment compensation as income and were qualified for the adjustment by reviewing the Forms 1040 and 1040-SR that were submitted before the law’s adoption. The right combination of unemployment benefit and tax was calculated by the IRS.

While some taxpayers got refunds, others had the excess money used to pay back taxes or other bills. Some people’s adjusted gross income was simply decreased as a result of the exclusion. These taxpayers received notice of the revisions by letter sent by the IRS. The letter should be stored alongside the taxpayer’s tax documents.

Approximately 14 million returns were corrected by the IRS. As a result, there were over 12 million refunds totalling $14.8 billion, with a $1,232 average return.

Numerous of the modifications were changes to the:

A taxpayer may need to file an updated 2020 tax return in order to claim the unemployment compensation exclusion and any associated non-refundable or refundable credits that are affected by the exclusion if their account was not adjusted by the IRS and they are entitled for it.

If the taxpayer already submitted a return claiming the exclusion, they shouldn’t file an updated one. Taxpayers should read the 2020 Unemployment Compensation Exclusion FAQs on IRS.gov for further details, including qualifying conditions.

Taxpayers can use tax preparation software to electronically submit Form 1040-X, Amended U.S. Individual Income Tax Return, if they need to modify Forms 1040 and 1040-SR for tax year 2020.

Taxpayers have the option of viewing their 2020 tax records in their online accounts or having a transcript of their tax returns delivered to them.

(Source Credit: This article was originally published by irs.gov/newsroom: IR-2023-02 on January 6, 2023.)