IRS to issue more refunds to those who overpaid taxes on unemployment compensation

The Internal Revenue Service announced Tuesday it is sending out another round of refunds to those who overpaid their taxes on unemployment benefits received last year.

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Millions are due refunds for taxes they paid on unemployment insurance before the American Rescue Plan Act became law in March and excluded up to $10,200 in unemployment compensation from taxable income calculations.

According to the IRS, refunds by direct deposit will begin July 14 and refunds by paper check will begin July 16.

This round of refunds is the third the IRS has sent out concerning the overpayment of taxes on unemployment compensation. The agency said in a news release it will continue to issue refunds throughout the summer.

The IRS has been reviewing Forms 1040 and 1040SR to identify those who are due an adjustment on their refund because of overpayment of taxes on unemployment compensation. The IRS said that those who have overpaid unemployment compensation taxes generally do not need to contact the agency about the overpayment since it is already reviewing the tax returns.

“Most taxpayers need not take any action and there is no need to call the IRS,” the agency said in a news release. “However, if, as a result of the excluded unemployment compensation, taxpayers are now eligible for deductions or credits not claimed on the original return, they should file a Form 1040-X, Amended U.S. Individual Income Tax Return.”

The IRS identified approximately 4.6 million taxpayers who may be due an adjustment in this round, the agency said. Of that number, approximately 4 million taxpayers are expected to receive a refund. The refund average is $1,265.

Those payments will be received by direct deposit on Wednesday or by paper checks which will begin to go out on Friday.

While those who overpaid generally do not need to file an amended income tax form, some may be eligible for deductions or credits not claimed on the original return, the IRS said.

Taxpayers should file an amended return if they:

· Did not submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit after the unemployment compensation exclusion.

· Did not submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible for the credit after the unemployment compensation exclusion.

· Are now eligible for any other credits and/or deductions not mentioned below. Make sure to include any required forms or schedules.

Taxpayers do not need to file an amended return if they:

· Already filed a tax return and did not claim the unemployment exclusion; the IRS will determine the correct taxable amount of unemployment compensation and tax.

· Have an adjustment because of the exclusion, that will result in an increase in any non-refundable or refundable credits reported on the original return.

· Did not claim the following credits on their tax return but are now eligible when the unemployment exclusion is applied: Recovery Rebate Credit, Earned Income Credit with no qualifying dependents or the Advance Premium Tax Credit. The IRS will calculate the credit and include it in any overpayment.

· Filed a married filing joint return, live in a community property state, and entered a smaller exclusion amount than entitled on Schedule 1, line 8.

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