12 Million IRS Tax Refunds In 2020

Since the COVID-19 pandemic, a major layoff in 2020 has led to millions of unemployed people. It was when the IRS designed a tax break to help these needy individuals. It led to them receiving unemployment benefits.


However, the timing of this tax break (the enactment of the Americal Rescue Plan Act) was not the most appropriate. Individuals who received unemployment benefits during 2020 had already filed for their 2020 federal tax returns, which didn’t include unemployment compensation. The tax break caused the IRS to issue a staggering $14.8 billion tax refund to almost 12 million people.


Altered Tax Returns


Many taxpayers were possibly deprived, leading to the IRS reviewing the 2020 tax year returns. It helped them identify the taxpayers who had earlier reported their unemployment benefits as their income. These individuals were the ones who were applicable for the tax break.


The tax correction process is complete, and the figure has increased to twelve million people receiving unemployment tax refunds. However, not all tax refunds were provided to individuals as checks. For most taxpayers, the IRS applied the tax refund amount as a credit to other debts they had or the taxes due. It resulted in the amount being reduced. The many corrections that the IRS made to the tax returns of 2020 included the following; American opportunity tax credit, enhanced child tax credit, and income tax credit.


Unemployment Compensation Tax Refunds


The process of amendment by the IRS has long been happening since 2020. However, many taxpayers are still waiting to receive their unemployment compensation tax refunds. Since several taxpayers faced the same issues, the IRS suggested that individuals without compensation file an amended return on their 2020 tax returns.


However, taxpayers who have already filed for their amended tax returns for 2020 need not do it again, as it will be processed. The IRS went one step ahead to post some FAQs to help answer taxpayers’ queries and concerns.


Clarity On Unemployment Benefits


Most taxpayers have got the wrong idea about unemployment benefits not being taxed. It was only a one-time rule applied through the American Rescue Plan Act in 2020 due to a loss of jobs for millions of Americans during the pandemic. However, usually, the unemployment benefits that individuals receive are taxable.


Even though it seems unusual to do so, the IRS looks at unemployment benefits as wages that are taxed depending on your income tax bracket. They also look at the rate of income that goes with it. Individuals who receive unemployment benefits should also receive them in the coming year in January 1099-G form. It will show the total unemployment income you have received from the state and how many taxes you have withheld (if there are any).


Final Verdict


Unemployment taxes vary from one state to another. While one state might not tax your income, it will tax your unemployment benefits. It is best to consult a professional in case of any queries or when you need to calculate the taxes you must pay.