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IRS Issues Nearly $15B in Refunds After Correcting for 2020 Unemployment Compensation Tax Overpayments

S.J. Steinhardt
Published Date:
Jan 9, 2023

The IRS has made corrections to the tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation that year, and has issued almost $15 billion in refunds.

The IRS reviewed the Forms 1040 and 1040-SR that were filed prior to the enactment of the American Rescue Plan Act in March 2021. That law excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing jointly). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

The agency's review aimed to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. It then determined the correct taxable amount of unemployment compensation and tax. Of the approximately 14 million returns corrected, nearly 12 million refunds totaling $14.8 billion were issued, with an average refund of $1,232.

Many of the adjustments included corrections to the Earned Income Tax Credit, Recovery Rebate Credit, Additional Child Tax Credit, American Opportunity Tax Credit, Premium Tax Credit and Advance Premium Tax Credit.

Not every return was corrected, and the IRS is no longer automatically determining the correct taxable amount of unemployment compensation and the correct tax affected by the exclusion of this income. Taxpayers who filed their 2020 returns without claiming the exclusion may need to file an amended return to claim the exclusion and any applicable nonrefundable or refundable credits impacted by the exclusion if they are eligible to exclude up to $10,200 in unemployment compensation and the IRS did not correct their accounts as part of the automatic correction process.

Taxpayers who have not filed their 2020 returns and whose adjusted gross income is less than $150,000 can still claim the special exclusion for unemployment compensation received in tax year 2020 by filing an amended tax return (Form 1040-X).

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