IRS issuing another 1.5 million refunds to those who paid taxes on unemployment benefits

The Internal Revenue Service is sending out another 1.5 million refunds starting this week to workers who paid federal income taxes on the unemployment benefits they received in 2020.

It is the fourth round of refunds the IRS has made since the American Rescue Plan became law in March.

Normally, unemployment benefits are considered taxable income, but the relief package passed by Congress in March exempted up to $10,200 in benefits for taxpayers with a 2020 income of up to $150,000. For married couples filing jointly, $20,400 in benefits are exempted.

The problem is that millions of taxpayers already had filed their 2020 tax returns by the time Congress acted.

The IRS is refunding money without taxpayers taking any action.

It said previously that it had identified 13 million workers who may be eligible for some kind of adjustment on their refund.

For this round, the IRS adjusted returns for 1.7 million taxpayers. Of that number, 1.5 million taxpayers were entitled to a refund. The average refund is $1,686.

Since May, the IRS has made more than 8.7 million refunds totaling more than $10 billion.

The IRS says it will continue reviewing and adjusting the affected tax returns through the summer.

The IRS says if, because of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file an amended tax return.

Getting a state refund on the unemployment benefits will take more work.

Affected taxpayers will have to file an amended Ohio tax and school district return after the IRS issues the refund.

They will need to include a copy showing their new adjusted income and complete a form that explains the reason why they are filing an amended return. 

mawilliams@dispatch.com

@BizMarkWilliams