Individuals still waiting for their special tax refunds for the unemployment compensation tax exclusion for 2020 to arrive from the Internal Revenue Service should not expect to receive any dollars in time for the holiday season.
As of December 20, the Internal Revenue Service added a new part to its IRS Operations During Covid-19 web page, which shows the current status of unemployment benefit exclusion repairs.
A second batch of these extraordinary refunds, according to the company, will be issued before the conclusion of the calendar year. Although it adds that the process will continue into 2022 as it continues to assess more complex returns, it does not specify when this will happen.
According to the most recent update, the IRS has awarded more than 11.7 million of these extraordinary refunds totaling $14.4 billion to taxpayers so far. On November 1, 2013, the Internal Revenue Service revealed that it has recently issued around 430,000 refunds worth more than $510 million.
This is the same data that was disclosed by the IRS on November 1. In that batch of corrections, the average special refund was $1,189, with the highest being $2,080.
In its announcement, the IRS stated that it had identified more than 16 million taxpayers who would be qualified for the special reimbursements. Some taxpayers may receive refunds, while others will have their overpayments applied to their outstanding taxes or other bills by the IRS.
What is the reason for the IRS granting these special refunds? According to the March 11th Covid-relief American Rescue Plan, Congress made up to $10,200 of 2020 unemployment benefits nontaxable for individuals and married couples with a modified adjusted gross income of less than $150,000 on March 11, 2019.
Employers are generally required to pay income tax on unemployment benefits. This includes both standard state benefits and the additional $600 per week provided under the CARES Act for pandemic workers.
The problem is that a large number of people had already submitted their 2020 tax returns before Congress passed legislation granting retroactive tax relief.
The solution: Rather than needing updated forms, the IRS chose to make automated repairs based on the new $10,200 exclusion, which resulted in special refunds being issued to those who were eligible.
Although it appears to be straightforward, when you make a single adjustment to a tax return, there is a cascade effect and you want to ensure that the fix is done correctly.
If you are entitled to a special unemployment tax refund, keep an eye out for an IRS letter that will explain how they amended your return.
Once the adjustments are made, the letter should be received within 30 days of the completion of the corrections. It will include the amount of the refund, as well as any overpayments that will be applied to outstanding taxes or other federal or state bills owed, if any, that are owed at the time.
The vast majority of taxpayers who received unemployment benefits in the previous year did not need to file an updated return in order to benefit from the special Cares Act unemployment compensation tax credit.
However, there are rare instances where you should. The most recent revisions to the Internal Revenue Service’s Frequently Asked Questions on the 2020 unemployment compensation exclusion, which were published on November 12, cover updated returns.
Topic D, Question 2: If I know I will be entitled to a credit or deduction that was not claimed on my tax return, what should I do? Is it necessary for me to file an amended return? “It all depends,” says A2. The increased child tax credit and the earned income tax credit are the only exceptions to this rule.
Topic G, Questions 8 and 9, and Q10 What is the purpose of receiving an IRS CP08 or CP09 notice? A: You may qualify for the additional child tax credit or the earned income credit, depending on your financial situation.
The IRS letter/notice does not force you to file an amended return; nonetheless, you should respond to it.
Topic I, Question 3: What should you do if you have children attending college and are filling out the FAFSA? The financial aid office at your institution should receive a copy of your CP21 Notice if you have received one.
Modifications to the American Opportunity Tax Credit would be included in the Notice if any changes were made to the credit.