Stimulus update: IRS to recalculate taxes on unemployment benefits; refunds to start in May

Beginning in May, the Internal Revenue Service will begin refunding money to people who have already filed their returns without claiming the new tax break on unemployment benefits that the American Rescue Plan provided for, the agency said in a news release.

>> Read more trending news

The legislation allows taxpayers who earned less than $150,000 in adjusted gross income to exclude unemployment compensation up to $20,400 if married and filing jointly, or $10,200 for all other eligible taxpayers.

“Because the change occurred after some people filed their taxes, the IRS will take steps in the spring and summer to make the appropriate change to their return, which may result in a refund. The first refunds are expected to be made in May and will continue into the summer, the agency said in the news release.

The IRS will automatically amend the returns — taxpayers do not have to refile their returns, the agency said. The IRS will conduct the recalculation in two phases, the agency said. The IRS will start with individual taxpayers eligible for the $10,200 of unemployment benefits, then correct the returns for married couples filing a joint tax return. Married couples are eligible for the tax break on up to $20,400 of benefits.

More than 23 million U.S. workers nationwide filed for unemployment benefits last year, according to the Bureau of Labor Statistics.

The agency urged taxpayers to review their state tax returns as well.

If you received unemployment benefits and have not filed your 2020 tax return yet, the IRS has worked with tax preparation software companies to reflect the updates for those who file returns electronically.

For more information on the change to unemployment benefits, you can click here.