American citizens who filed their tax returns early, without making claims for a tax break on unemployment income, will be receiving tax refunds from the IRS.

Generally under the law, unemployment benefits are still considered income on which taxes are still due. However, the $1.9 trillion American Rescue Plan approved by Congress and enacted by President Biden last March 11, includes provisions that waive the federal tax on unemployment benefits received in 2020. The amount of tax break is capped at $10,200 per individual taxpayer.

The provision aims to provide relief to the millions of jobless Americans who received unemployment benefits, to reduce whatever tax amount they need to pay for the 2020 tax year. The tax break is calculated on a per person basis, while households that collectively received more than $150,000 and above are ineligible to claim refunds.

The IRS to Recalculate Returns of Early Tax Filers

As a number of taxpayers have filed their income tax prior to the enactment of the law prescribing the tax cut provision, the IRS gives assurance that a refund will be sent out starting May 2021. The IRS has advised those who filed their tax returns early not to file an amended tax return as a means to claim the tax benefit. Apparently, early taxpayers were confused on how they can claim the tax rate, but the IRS has gives clarification that those who qualify will receive them as tax refunds.

A spokesperson for the tax agency explained that they are already conducting a two-part recalculation, starting with the tax returns of eligible individual taxpayers. The second-phase of recalculations will focus on the tax returns of married couples who filed joint tax returns, to which those who qualify will receive up to $20,400 ($10,200 x 2) in tax refunds. The second-phase will include income tax returns of taxpayers with more complex income and expense information than regular taxpayers.