Counting on a Refund? Don’t Miss This Little-Known Tax Credit Fix

By Liz Weston

Families battered by the pandemic recession soon may discover that the tax refunds they’re counting on are dramatically smaller — or that they actually owe income tax. Congress offered a partial solution, but the fix hasn’t been widely publicized, consumer advocates say.

Refunds are crucial to many lower- and moderate-income households, which use the money to catch up on bills and medical treatments, pay down debt and boost savings.

But the unemployment insurance that kept many people afloat last year may cause problems at tax time this year. Unemployment benefits are taxable, but tax withholding is typically voluntary — and many people who lost jobs either didn’t know their unemployment checks would be taxed, or they decided against withholding. (Relief checks, such as the $1,200 sent out last year, are not taxable.)