The IRS Just Sent More Unemployment Tax Refund Checks
With the latest batch, Uncle Sam has now sent tax refunds to over 11 million Americans for the $10,200 unemployment compensation tax exemption.


If you received unemployment benefits last year and filed your 2020 tax return relatively early, you may find a check in your mailbox soon (or a deposit in your bank account). Since May, the IRS has been sending tax refunds to Americans who filed their 2020 return and reported unemployment compensation before tax law changes were made by the American Rescue Plan.
The tax agency recently issued about 430,000 more refunds (totaling more than $510 million) averaging about $1,189 each. That brings the total count to over 11.7 million refunds totaling $14.4 billion for the 2020 unemployment compensation exclusion.
About the Unemployment Compensation Exemption
The American Rescue Plan Act, which was enacted in March, exempts up to $10,200 of unemployment benefits received in 2020 ($20,400 for married couples filing jointly) from federal income tax for households reporting an adjusted gross income (AGI) less than $150,000 on their 2020 tax return. If you received more than $10,200 in unemployment compensation last year, any amount over $10,200 is still taxable.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The IRS has identified over 10 million people who filed their tax returns before the plan became law and is reviewing those returns to determine the correct amount of tax on their unemployment compensation. For those affected, this could result in a refund, a reduced tax bill, or no change at all. (You can use the IRS's Interactive Tax Assistant tool to see if payments you received for being unemployed are taxable.)
The IRS started recalculating impacted tax returns with returns from single taxpayers who had relatively simple returns, such as those filed by people who didn't claim children as dependents or any refundable tax credits. The tax agency then shifted to joint returns filed by married couples who are eligible for an exemption up to $20,400 and others with more complex returns.
Remember, though, that the tax exemption only applies to unemployment benefits received in 2020. So, if you receive unemployment compensation in 2021 or beyond, expect to pay federal tax on the amount you get.
Refunds for Unemployment Compensation
If you're entitled to a refund, the IRS will directly deposit it into your bank account if you provided the necessary bank account information on your 2020 tax return. If valid bank account information is not available, the IRS will mail a paper check to your address of record. (If your account is no longer valid or is closed, the bank will return your refund to the IRS and a check will be mailed to the address the tax agency has on file for you.) The IRS says it will continue to send refunds until all identified tax returns have been reviewed and adjusted.
The IRS will send you a notice explaining any corrections. Expect the notice within 30 days of when the correction is made. Keep any notices you receive for your records, and make sure you review your return after receiving an IRS notice.
The refunds are also subject to normal offset rules. So, the amount you get could be reduced (potentially to zero) if you owe federal tax, state income tax, state unemployment compensation debt, child support, spousal support, or certain federal non-tax debt (i.e., student loans). The IRS will send a separate notice to you if your refund is offset to pay any unpaid debts.
Should I File an Amended Return?
Although the IRS says there's no need to file an amended return, some early filers may still need to, especially if their recalculated AGI makes them eligible for additional federal credits and deductions not already included on their original tax return.
The IRS, for example, can adjust returns for those taxpayers who claimed the earned income tax credit and, because the exemption changed their income level, may now be eligible for an increase in the tax credit amount which may result in a larger refund. That said, most taxpayers will need to file an amended return if they didn't originally claim the tax credit, or other credits like the additional child tax credit, but now are eligible because the exclusion changed their income, according to the IRS. (These taxpayers may want to review their state tax returns as well.)
There are two exceptions to this general rule. First, you don't need to file an amended return to claim the recovery rebate credit, earned income tax credit with no qualifying children, or the premium tax credit even if it wasn't claimed on your return. If you're suddenly eligible for these credits when the unemployment exemption is applied, the IRS will calculate the credit for you and include it in any overpayment. Second, don't file an amended return to claim the additional child tax credit or earned income tax credit if you reply to a notice from the IRS stating you may be eligible for one of these credits and you're not requesting any other changes to your 2020 tax return.
E-Filing Your 2021 Tax Return
Next year, when you try to e-file your 2021 tax return, you will have to sign and validate your electronic return by entering your prior-year AGI or your prior-year Self-Select PIN. If you use your AGI, make sure to use the AGI as originally reported on Line 11 of your 2020 Form 1040 or 1040-SR. Don't use the corrected AGI if the IRS adjusts your 2020 return to account for the unemployment exclusion.
Withholding from Unemployment Compensation
Again, the $10,200 exemption only applies to unemployment compensation received in 2020. So, to avoid a big tax bill when you file your 2021 return next year, consider having taxes withheld from any remaining unemployment payments you receive this year.
Contact your state unemployment office to have federal income taxes withheld from your unemployment benefits. You may be able to use Form W-4V to voluntarily have federal income taxes withheld from your payments. However, check with your state to see if it has its own form. If so, use the state form instead.
Victims of Unemployment Fraud
Whenever the government starts sending checks, criminals will try to get their hands on some of that money. That's certainly the case with the unemployment compensation tax refunds. The good news is that you won't be punished if a crook uses your name and personal information to steal a tax refund from Uncle Sam.
So, for example, if you received an incorrect Form 1099-G for unemployment benefits that you didn't receive, the IRS won't adjust your tax return to add the unemployment compensation to your taxable income. You should still report the fraud to the state workforce agency that issued the incorrect form, though.
What About State Taxes?
Just because the federal government is waiving taxes on the first $10,200 of your 2020 unemployment benefits, that doesn't mean your state will too. To see if your state has adopted the federal exemption for state tax returns, see Taxes on Unemployment Benefits: A State-by-State Guide.

-
Why More Retirees Might Come Out of Retirement
It’s often not solely because of financial reasons, but because of a lack of purpose in retirement. This financial expert can relate.
By Chris Blunt Published
-
What Would Accreditation Change Mean for Real Estate Investors?
Investors determined by a test to be ‘financially savvy’ would be allowed to invest in ways that they can’t now without having a certain level of assets.
By Edward E. Fernandez Published
-
One Key Rule for Understanding 2023 RMDs
RMDs Required minimum distribution (RMD) rules can be confusing, but there is a guideline that can help.
By Kelley R. Taylor Published
-
Capital Gains Tax on Real Estate and Home Sales
Capital Gains Tax Selling your home or a rental property? Here are important capital gains tax rules to keep in mind.
By Joy Taylor Published
-
Another Big IRS Tax Change for Online Sellers
Selling Online Just in time for the holidays, the IRS is delaying a significant tax 1099-K reporting requirement for 2023.
By Kelley R. Taylor Last updated
-
Tax-Deductible Black Friday Deals for the Self-Employed
Black Friday Deals Some Black Friday deals can help the self-employed save on business expenses and taxes.
By Katelyn Washington Published
-
Did You Overpay for Thanksgiving Dinner?
Thanksgiving 2023 marks the second most expensive Thanksgiving dinner in history. But how much it cost depended on what you bought, where you live — and whether your state taxes groceries.
By Katelyn Washington Last updated
-
150,000 Minnesota Tax Rebate Checks Are on the Way — Again
Tax Rebates Unclaimed Minnesota rebate checks could be forfeited to the state, so you don’t want to miss your payment this time around.
By Katelyn Washington Published
-
Estate Tax Exemption Amount Increases for 2024
Estate Tax The estate tax exemption amount is going up for 2024. Will your heirs escape a tax bill?
By Katelyn Washington Last updated
-
Child Tax Credit: How Much Is It for 2024?
Tax Credits What family tax credits and deductions will you qualify for in 2024? And how much are they worth?
By Katelyn Washington Published