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IRS tax refunds to start in May for $10,200 jobless benefits break

For those who filed 2020 tax returns before Congress passed an exclusion on the first $10,200 in unemployment benefits, here's how they'll get any refund.

Americans who collected unemployment benefits in 2020 during the COVID-19 pandemic, but already filed their taxes before Congress voted to make much of that money tax free, will get an automatic refund in the next few months, the IRS announced Wednesday. The first payments are expected to go out in May.

Two big points coming from the IRS announcement:

1. If you already filed your taxes, there's a chance you will not need to file an amended return to get the additional money back.

2. If you haven't filed your return yet, the additional tax break should already be reflected when you do turn it in.

For taxpayers who earned less than $150,000 in 2020, the American Rescue Plan allows couples who file taxes jointly to exclude up to $20,400 in jobless benefits from their taxes. For everyone else, up to $10,200 is forgiven.

Where the IRS ran into a problem is that the bill was signed into law on March 11. Tax season started a month earlier, so millions of Americans had already turned in their 2020 returns when it was signed. 

Now, the IRS said it will take steps this spring and summer to make changes to the returns and calculate appropriate refunds for those who already filed. The first refunds are expected to go out in May and continue through the summer.

"Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed," the IRS said in a statement.

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The IRS says there is no need to file an amended return unless the changes to the unemployment benefits lead to the taxpayer qualifying for other federal credits or deductions that were not reflected on their original return.

"For example, the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit (EITC) and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount which may result in a larger refund," the IRS said. "However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income."

The IRS said it has already worked with tax software companies to make appropriate changes, so anyone who has not yet filed their returns should see the changes reflected on the software going forward. For those who have yet to file, information about how the navigate the changes from the American Rescue Plan can be found here.

The IRS is also urging taxpayers to take another look at their state tax returns. It's possible taxpayers may also be owed more money from there as well.