In March 2021, the American Rescue Plan Act was passed which provided $1.9 trillion in additional relief in response to hardships many Americans are facing due to the pandemic. One of the components of the bill was classifying unemployment payments up to $10,200 for families making less than $150.000 as tax-exempt. Before the legislation was passed, unemployment income was taxable and needed to be reported when filing taxes. According to the IRS, over 10 million Americans had filed their taxes before the passing of the American Rescue Plan Act. Now the IRS will be reevaluating the tax returns for these individuals and they could qualify for an additional tax refund or reduced balance on their tax bill.
What do you have to do if you filed your taxes before the ARP was passed? The IRS announced on Friday, May 14th that you do not have to do anything right now. They will begin reviewing the tax returns and will be issuing refunds in a phased approach. According to the IRS, “The first phase is underway and includes the simplest returns. The next phase will include the more complex tax returns which the IRS anticipates will take through the end of summer to review and correct.” The IRS will be depositing any refunds automatically into taxpayer’s bank accounts. If they do not have a bank account on file, they will be mailing a check.
The IRS will send a letter explaining the adjustments within 30 days of the correction. It is recommended you review this information and retain a copy for your records.