The IRS has started sending out unemployment money to people who filed their taxes in 2020 before the American Rescue Plan was enacted into law. If you got unemployment benefits in 2020 and filed last year’s tax return early, you might not have gotten the unemployment funds that are now available to you because of the covid stimulus bill.
Many American taxpayers were worried they would miss the new unemployment benefits if they filed early, but as pledged, the IRS has automatically changed taxpayers’ incomes from 2020 and taken into account how it would change their eligibility for unemployment after March of 2020, when the legislation became law. It started giving automatic tax refunds to eligible people in May. While it has already mailed millions of checks, the IRS says it will keep doing this through the end of this summer.
The American Rescue Plan makes it so that as much as $10,200 for singles (or $20,400 for couples) of unemployment funds gotten in 2020 are exempt from federal income tax. The threshold for someone being eligible is an AGI of under $150,000 on your 2020 return. Only the initial $10,200 is exempt from taxation — any dollar higher than that is subject to tax.
Important to understand: This exemption deals with federal taxes, not with your state taxes. Although many states don’t tax unemployment funds regardless of the new stimulus bill, some states do, so it is important to find out what rules apply in your state.
The IRS says further action is not needed if you are among the people affected by this new change because the agency will automatically alter the tax returns of those people who are eligible.
With this being said, if you have filed early and your recalculated AGI now means you are eligible for more unemployment benefits not included in your initial return, you may need to send in a new amended return.
Either way, a new check in July will be a much needed relief for most Americans as inflation creeps in and prices increase to cause more pain for the American consumer.
Author: Blake Ambrose