The American Rescue Plan Act of 2021 (ARPA) retroactively excluded up to $10,200 in unemployment compensation per taxpayer paid in 2020. Since this new law was signed after some tax returns had already been filed, some people who received unemployment compensation in 2020 paid too much tax and were due a refund. After the law was signed, the IRS quickly clarified that no action needed to be taken to claim these refunds. Any adjustments that were necessary would be handled automatically by the IRS.
So far, the IRS has identified 13 million taxpayers that may be eligible for some adjustment to their tax bill due to this issue. Some will receive refunds, which will be issued periodically through the summer, and some will have the overpayment applied to taxes due or other debts. For some there will be no change.
The IRS started issuing some refunds in early June, sending out more than 2.8 million refunds in the first week of June to those who were entitled to them, and then issued the next set of refunds in mid-June. The review of returns and processing corrections will continue during the summer as the IRS continues to review the simplest returns and then turns to more complex returns.
Affected taxpayers will receive letters from the IRS, generally 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.
If you have questions about whether you are entitled to an adjustment to your tax due to this issue, or if you are confused by a letter that you received from the IRS, please contact our office so we can help.