The pandemic hit some rather hard in the pocketbook. While some Americans are finding their feet again, financial relief is still a welcome sight for many. As the child tax credits are being mailed out to those who qualify, there is another tax refund that could be landing up in your bank account soon.
If you paid taxes on unemployment compensation last year, there is a chance that you overpaid. The IRS estimates that nearly 5 million Americans fall into this category.
There are certain conditions attached to it, so you need to check if you qualify. Here are all the details on the refund and how to check eligibility.
Here’s the backstory
The American Rescue Plan Act of 2021 excluded up to $10,200 for individuals and married couples whose income was less than $150,000. This impacted the unemployment compensation from taxable income calculations.
The IRS says that direct deposits have already started to be paid, while paper checks are due to start being mailed July 16. For most people, you don’t have to do anything as the IRS has been reviewing the Forms 1040 and 1040SR documentation.
“Most taxpayers need not take any action, and there is no need to call the IRS. However, if, as a result of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return,” the IRS explained in a press statement.
What this mean for you
As the IRS explained, in most cases, taxpayers shouldn’t have to do anything. There are special circumstances, though, where some action is needed.
You should file an amended return if you:
- Did not submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit after the unemployment compensation exclusion;
- Did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible for the credit after the unemployment compensation exclusion;
- Are now eligible for any other credits and/or deductions not mentioned below. Make sure to include any required forms or schedules.
Taxpayers do not need to file an amended return if they:
- Already filed a tax return and did not claim the unemployment exclusion; the IRS will determine the correct taxable amount of unemployment compensation and tax;
- Have an adjustment, because of the exclusion, that will result in an increase in any non-refundable or refundable credits reported on the original return;
- Did not claim the following credits on their tax return but are now eligible when the unemployment exclusion is applied: Recovery Rebate Credit, Earned Income Credit with no qualifying dependents or the Advance Premium Tax Credit. The IRS will calculate the credit and include it in any overpayment;
- Filed a married filing joint return, live in a community property state, and entered a smaller exclusion amount than entitled on Schedule 1, line 8.
Taxpayers will generally receive letters from the IRS within 30 days of the adjustment, informing them of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment.