What you need to know about unemployment tax refund, IRS timeline and more

Millions of Americans who got unemployment benefits could be getting some extra money back from the IRS. 

Angela Lang/CNET

Did you receive unemployment benefits in 2020 because of the pandemic? If you paid taxes this year on the money you got last year, the IRS is now sending refunds to those who qualify for a tax break on the benefit. Unemployed workers can’t be taxed on that benefit money due to new rules under the American Rescue Plan. The new law came into effect after millions had already filed their income tax returns, however, so taxpayers are now eligible for an IRS tax refund for up to $10,200 for single filers.

Those refunds started going out earlier this month and will continue through the summer as the IRS processes tax returns and reviews taxes paid on unemployment insurance. The agency said refund amounts will vary and 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 may have also heard about states opting out of $300 bonus unemployment payments and other jobless benefits programs. If you’re wondering about other money you might be entitled to receive, here are some details about the enhanced child tax credit, how much you could get and information about the upcoming IRS child tax credit portals. This story has been updated.

What is the unemployment tax refund? 9 things to know

The IRS started sending unemployment refunds to taxpayers who treated their benefit payments as income and were taxed on it when they filed their return this year. Here’s what you can 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 and will run through the summer, as the IRS evaluates tax returns. More complicated returns could take longer to process. 
  • 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.)
  • 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 those 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 the unemployment tax refund

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 about stimulus check problems.) We’ve reached out to the IRS for clarification. 

For more, here’s everything to know about the child tax credit for up to $3,600 per child and who qualifies.