The IRS plans to automatically process refunds for taxpayers who had unemployment income in 2020 and file their tax returns before legislation passed that made those benefits tax free.
The American Rescue Plan, which was signed into law by Pres. Joe Biden on March 11 made the first $10,200 of unemployment income tax free for people with adjusted gross income of less than $150,000 in 2020 (the break is $20,400 for two workers in a married couple filing taxes jointly.)
But by the time the law passed, in the middle of tax season, some people who received unemployment income in 2020 had already filed and paid taxes on those benefits.
The IRS is working on a fix that means most people in that situation will not have to take any extra steps, such as filing an amended tax return, to recoup the taxes they paid but don’t 00 per the new rule.
New tax filing instructions
People who had unemployment income in 2020 and have not yet filed their tax return may need to wait to ensure that they submit all information to the IRS correctly.
The agency on Friday released new instructions, including a worksheet for paper filers, and said it would work with online tax programs to update current software.
Taxpayers have additional time to sort out and file their taxes this year. The IRS recently pushed the tax filing deadline for individual taxpayers to May 17 from April 15.