The IRS began issuing another 1.5 million tax refunds this week to people who received unemployment benefits in 2020. That adds to the nearly 9 million refunds, worth about $10 billion, the agency sent since May.
Funds delivered by direct deposit this week started hitting bank accounts on Wednesday, and paper checks were mailed beginning Friday. The average refund is $1,686.
But those who got a refund, and also continued to collect unemployment benefits in 2021, shouldn’t expect a similar break on their federal taxes next filing season, according to financial experts.
Jobless benefits are generally treated as taxable income, but federal lawmakers waived tax on a portion of benefits received in 2020, after the Covid-19 pandemic led an unprecedented number of people to tap the unemployment system.
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The economic situation is such that lawmakers may not feel compelled to offer the same tax assistance next year. More than 13 million Americans were receiving benefits as of mid-July, according to the Labor Department.
“That provision came up in a year when we had record levels of unemployment,” Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, has told CNBC. “Fortunately, the economy has improved, which really reduces the probability it would be extended.”
The American Rescue Plan, which President Joe Biden signed in March, excluded up to $10,200 of unemployment benefits collected in 2020 from federal income tax, per person. (Only those with less than $150,000 in income were eligible.) Some states followed with their own tax breaks.
However, these tax waivers came after millions of people had already filed their annual tax returns. The IRS is now refunding any tax overpayment that may have occurred as a result.