Waiting for an unemployment tax refund from the IRS? Here’s what to know

Millions of Americans who received unemployment insurance last year will be getting some money back. 

Angela Lang/CNET

Did you get unemployment checks in 2020 and treat that money as income when you filed your tax return this year? If so, you might be due for a tax break. Based on new rules under the American Rescue Plan, workers can’t be taxed on the jobless benefits they received during the pandemic. Since the new regulations were approved after many taxpayers had already filed, they will now be eligible for an IRS tax refund for the first $10,200 (or $20,400 for married couples filing jointly). 

While the IRS is still processing tax returns and reviewing the taxes paid on unemployment insurance, the tax agency started sending out unemployment refund checks earlier this month and will continue throughout the summer. The agency said the amounts will vary; not every adjustment will result in a refund. We’ll explain the unemployment tax exemption here and tell you what we still don’t know. 

You also might have heard about the many states opting out of the $300 bonus unemployment payments and other jobless benefits programs starting next month. If you’re a parent, you also may want to know details about the enhanced child tax credit, how much you could get for your family and information about the upcoming IRS child tax credit portals. This story has been updated recently.

9 things to know about the coming unemployment tax refunds

The IRS says it started sending refunds to taxpayers who treated their jobless benefit payments as income on their taxes this year. Here’s what to expect:

  • The tax break is for those who earned less than $150,000 in adjusted gross income.
  • Refunds started going out the week of May 10 according to the IRS and will run through the summer as the agency evaluates tax returns. More complicated returns could take longer to process. Those waiting for checks have posted their frustration on Reddit and Twitter over the slow rollout. 
  • If the IRS determines you are owed a refund on the unemployment tax break, it will automatically send a check.
  • You do not need to file an amended return to claim the exemption. (Here’s how to track your tax return status and refund online.) Some who used tax software such as TurboTax said they have seen their refund amount change due to the unemployment refund, although they have yet to see a check. 
  • Refunds will go out as a direct deposit if you provided bank account information on your 2020 tax return. Otherwise, the refund will be mailed as a paper check to the address the IRS has on hand.
  • The IRS is doing the recalculations in two phases, starting with single filers who are eligible for the up to $10,200 tax break. It will then adjust returns for those married-filing-jointly taxpayers who are eligible for the up to $20,400 tax break.
  • The IRS will send you a notice explaining the corrections within 30 days of when a correction is made.
  • You won’t be able to track the progress of your refund through the IRS Get My Payment tracker, the Where’s My Refund tool, the Amended Return Status tool or another IRS portal.
  • The IRS can seize the refund to cover a past-due debt, such as unpaid federal or state taxes and child support.

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Things we still don’t know about unemployment tax refunds

The IRS has provided some information on its website about taxes and unemployment compensation. We are still unclear as to how to contact the IRS if there’s a problem with your tax break refund. (Here’s what we know about contacting the IRS for stimulus check problems.) We’ve reached out to the IRS for clarification. 

For more, here is information about the child tax credit for up to $3,600 per child and who qualifies.