IRS Completes Corrections Related to Unemployment Compensation Exclusion
The IRS recently completed the corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation they received in 2020.
The American Rescue Plan Act of 2021, which became law in March 2021, excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations (up to $10,200 for each spouse if married filing jointly). The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.
The IRS reviewed the Forms 1040 and 1040-SR that were filed prior to the law's enactment to identify taxpayers who had already reported unemployment compensation as income and were eligible for the correction. The IRS determined the correct taxable amount of unemployment compensation and tax.
Some taxpayers received refunds, while others had the overpayment applied to taxes due or other debts. In some cases, the exclusion only resulted in a reduction in their adjusted gross income. The IRS mailed a letter to these taxpayers to inform them of the corrections.
The IRS corrected approximately 14 million returns. This resulted in nearly 12 million refunds totaling $14.8 billion, with an average refund of $1,232.
Many of the adjustments included corrections to the:
- Earned Income Tax Credit
- Recovery Rebate Credit
- Additional Child Tax Credit
- American Opportunity Tax Credit
- Premium Tax Credit
- Advance Premium Tax Credit
If a taxpayer is eligible for the unemployment compensation exclusion and their account was not corrected by the IRS, they may need to file an amended 2020 tax return to claim the exclusion and any applicable non-refundable or refundable credits impacted by the exclusion.
Taxpayers should not file an amended return if they previously filed one claiming the exclusion. The IRS recommends taxpayers read the 2020 Unemployment Compensation Exclusion FAQs for more details.