Americans who received jobless benefits after the pandemic closed businesses last year are finally starting to get the tax relief they were promised when the American Rescue Plan was signed into law in March.
The stimulus package allows them, if they’re part of a household that’s earned under $150,000 in annual gross income, to exclude up to $10,200 in unemployment benefits from their taxable income.
Without the American Rescue Plan, unemployed workers would have been on the hook to pay taxes on up to $24,000 worth of benefits collected in 2020, according to prior estimates made by Michele Evermore, a senior advisor on unemployment insurance at the U.S. Department of Labor.
The exclusion could trim roughly $1,000 to $2,000 from a household’s tax bill, according to some tax experts.
But because the $1.9 trillion stimulus package was passed a month before April 15, the usual deadline to file taxes, some 13 million unemployed Americans who filed their taxes early ended up overpaying, according to the Internal Revenue Service.
In total, some 40 million people collected unemployment benefits last year, according to research published by the Century Foundation, a progressive think-tank.
Last month the IRS issued 2.8 million refunds via direct deposit or paper check, or applied the refunds towards other unpaid obligations the individual may have. This week the IRS announced it would issue another 4 million refunds averaging $1,265 per payment.
“Most taxpayers need not take any action and there is no need to call the IRS,” an IRS statement says. But if you qualify for more deductions or tax credits with your new adjusted gross income figure, you should file a Form 1040-X, Amended U.S. Individual Income Tax Return.
You can check the status of your refund using the IRS’ Check My Refund Status tool.