IRS to correct tax returns for the 2020 tax year

In February 2021, Congress passed legislation that changed tax rules applicable to the 2020 tax year.

Now, the IRS will be refunding eligible taxpayers who filed their 2020 return prior to the rule change.

The IRS will start to issue refunds to eligible taxpayers who paid taxes on 2020 unemployment compensation that the American Rescue Plan recently excluded from taxable income.

Who gets a refund?

The IRS identified over 10 million tax payers who filed their tax returns prior to when the American Rescue Plan of 2021 became enacted in March. Tax returns are currently in review so that the IRS may properly identify the correct taxable amount of unemployment compensation and tax. This may result in a refund, reduced balance, or no change to tax.

When will taxpayers receive the refund?

Refunds will be issued by the IRS in phases of adjustments, first starting with single taxpayers who did not claim any dependents or refundable tax credits. The next phase will include more complex tax returns, which the IRS anticipates will take through the end of summer to review and correct.

How will taxpayers be refunded?

The IRS will issue refunds by direct deposit for taxpayers who provided bank account information on their 2020 tax return. If bank account information was not provided, the refund will be mailed as a paper check to the address on record. Refunds will be sent through the IRS until all refunds have been reviewed and adjusted.

Is unemployment compensation taxable?

Unemployment compensation is taxable income. The American Rescue Plan excludes $10,200 in 2020 unemployment compensation from income used to calculate the amount of taxes owed. To lean more, visit the IRS website or contact Eddie Patel Inc.