Will You Receive An Unemployment Tax Refund?

taxes Jun 01, 2021

Updated June 1, 2021

The IRS announced a couple weeks ago that millions of Americans who were on unemployment in 2020 would be receiving refunds on their 2020 taxes thanks to the unemployment provision in the March stimulus bill. If you received unemployment payments in 2020 and filed your taxes early in 2021 (prior to the bill’s passing), you may be eligible for a payment from the IRS. Here’s what you need to know.

Who Will Receive An Unemployment Tax Refund?

When the American Rescue Plan was passed in March of 2021, it included a provision to make $10,200 of 2020 unemployment income exempt from federal taxes. However, because the bill didn’t pass until several months into 2021, millions of people had already filed their taxes, and had included their 2020 unemployment income as taxable income. This meant they overpaid on their federal taxes. The IRS is now correcting these filers’ returns and distributing payments to refund them. The refunds will vary based on how much unemployment income you received and your overall tax burden.

Do You Need to Do Anything to Receive the Refund?

The IRS has stated that people who are eligible for refunds will receive them automatically through either direct deposit or a check (if your direct deposit information is on file, the IRS will use that). You don’t need to file an amended return or get in touch with the IRS to receive a payment. The IRS will send a notice to eligible taxpayers explaining the corrections that they will be making, and then their payments will arrive within 30 days.

How Many People Are Expected to Receive an Unemployment Tax Refund?

The IRS is still processing returns from the beginning of the year. However, so far over 10 million people have been identified who will be eligible for unemployment tax refunds. Because unemployment income wasn’t exempted from taxation until March, people who filed early in 2021 counted it towards their 2020 taxable income.

When Will Unemployment Tax Refunds Be Distributed?

The IRS has begun distributing payments already, starting with those who filed the simplest returns (single people with no dependents or other refunds), and then moving on to those with more complicated returns like married couples who filed jointly. Payments will continue to be made throughout the summer, with the goal of distributing all the unemployment refunds by the fall. We will keep you updated as the payments are distributed.

Will 2021 Unemployment Income Be Taxed?

The tax exemption only applies to 2020 taxes right now. It’s possible it could be expanded or another exemption passed, but for the time being you should plan to include your 2021 unemployment payments as taxable income when you file your taxes for this year.

More Unemployment Information

We will keep you updated as more news is released about unemployment boosts and benefits. In the meantime, you can read some of our other unemployment coverage below.

📌 States Are Cutting Unemployment to Force People Back to Work

📌 What's the Difference Between Partial and Full Unemployment?

📌 Was Your Unemployment Application Denied? Here's What to Do

📌 Pro-tip: Join nearly 100,000 others getting early access to grants and other funding opportunities. Don't miss out on new grants and low-interest capital for your small business!

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