Tax Law and News Taxpayers may receive a refund for taxes paid on 2020 unemployment compensation Read the Article Open Share Drawer Share this:Click to share on Twitter (Opens in new window)Click to share on Facebook (Opens in new window)Click to share on LinkedIn (Opens in new window) Written by Intuit Accountants Team Modified Jun 21, 2021 2 min read The IRS is reviewing tax returns filed before the American Rescue Plan Act (ARPA) of 2021 became law in March 2021 to determine the correct taxable amount of unemployment compensation and tax. For eligible taxpayers, this could result in a refund, a reduced balance due, or no change to tax. IRS efforts to correct unemployment compensation overpayments will help most affected taxpayers avoid filing an amended tax return. Some taxpayers will receive refunds that will be issued periodically, and some will have the overpayment applied to taxes due or other debts. For some, there will be no change. ARPA excluded up to $10,200 in unemployment compensation per taxpayer from taxable income paid in 2020. Taxpayers should not have been taxed on up to $10,200 of the unemployment compensation. This is not the amount of the refund taxpayers will receive. Other adjustments The agency is also making corrections for the earned income tax credit (EITC), premium tax credit, and recovery rebate credit affected by the exclusion. The IRS can adjust tax returns for those who are single with no children and who become eligible for the EITC. The IRS also can adjust tax returns where the EITC was claimed and qualifying children identified. Taxpayers who have qualifying children and become newly eligible for the EITC after the exclusion is calculated may have to file an amended return to claim any new benefits. If the IRS adjusts someone’s tax return, the taxpayer will receive a letter within about 30 days, explaining what kind of adjustment was made and the amount of the adjustment. Types of adjustments include a refund, payment of IRS debt, or payment offset for other authorized debts. Offsets include past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal non-tax debts, such as student loans. Tax professionals should advise their clients to keep any IRS notices for their records, and help them review their tax return after receiving any IRS notices. Previous Post IRS sending letters to 36+ million families who may qualify… Next Post IRS tool helps low-income families register for monthly Child Tax… Written by Intuit Accountants Team The Intuit® Accountants team provides ProConnect™ Tax, Lacerte® Tax, ProSeries® Tax, and add-on software and services to enable workflow for its customers. Visit us at https://proconnect.intuit.com, or follow us on Twitter @IntuitAccts. More from Intuit Accountants Team Comments are closed. Browse Related Articles Tax Law and News Tax benefits: Accommodations for people with disabiliti… Practice Management Consultant Spotlight: John Trammell Practice Management Why you should care about green cloud computing Practice Management Consultant spotlight: Steven G. Advisory Services Understanding your client’s relationship with mon… Practice Management Consultant spotlight: Jonathan Lovitt Practice Management ProConnect™ Tax spotlight: Megan Leesley, CPA Tax Law and News Boo! Extension season horror stories Tax Law and News Tax relief for victims of Hurricane Milton Practice Management Tax Season Readiness virtual conference—Nov. 13-14