IRS to Recalculate Taxes on Unemployment Benefits; Refunds to Start in May

The IRS will automatically refund money to people who filed their tax returns reporting 2020 unemployment compensation before the recent changes made by the American Rescue Plan.

The new legislation allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The legislation excludes only 2020 unemployment benefits from taxes.

There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return. The first refunds are expected to go out in May and will continue into the summer.