IRS may automatically refund taxes paid for unemployment benefits. Everything to know

Unemployed workers could get more money from the IRS. 


Sarah Tew/CNET

For those who received unemployment benefits in 2020, a $10,200 tax exemption was added to the details of the American Rescue Plan. Additional weeks of a $300 bonus payment were also included in the new legislation, along with a third stimulus check and a boost to the child tax credit. There’s some confusion surrounding how the tax break might work, but the IRS says it will handle the exemption and send out refunds if needed. 

The agency made an update to the unemployment benefits tax exemption in the latest stimulus bill on March 31, saying it will recalculate taxes for people who received unemployment compensation in 2020 and already filed their tax returns

Last year 23 million Americans filed for unemployment due to the coronavirus pandemic, according to the Bureau of Labor Statistics. Under the Pandemic Unemployment Assistance created under the CARES Act last March, this included those who were laid off from their job as well as gig workers, contractors and self-employed people who don’t normally qualify for unemployment insurance. 

Here’s everything to know so far


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“This new clarification from the IRS is good news for the millions of taxpayers impacted, but may still be confusing,” said Mark Steber, chief tax information officer for Jackson Hewitt. “Some taxpayers may have questions as to the timing of any payment and whether it will come in a check or other form. The IRS is still providing clarification on these and other questions related to the just announced program. Once taxpayers receive their automatic payments in the coming weeks and months it may be a good idea to check in with a trusted tax pro to make sure the IRS computed their amount correctly.”

For more details, here are seven ways to get more money back on your 2020 tax return, everything about the child tax credit for up to $3,600 per child and what to know about the new May 17 tax deadline.


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