Many people who were out of work in 2020 may want to check their bank accounts now for extra tax refund cash from the federal government — if they did not get that money already.
And if you have children, you’ll need to check again this week for a special stimulus of sorts known as the Child Tax Credit.
Taxpayers who filed early this year and have been waiting endlessly for tax refunds related to a change in the way unemployment benefits were taxed on 2020 returns report seeing money in their accounts Wednesday morning.
The Internal Revenue Service announced it would issue another round of tax refunds to nearly 4 million taxpayers who overpaid their taxes on unemployment compensation received last year. The taxpayers overpaid because they filed returns based on old tax rules that treated all jobless benefits as taxable income.
The refunds apply to tax returns filed in February and March before the tax rules changed when the American Rescue Plan was signed into law March 11.
The refund average is $1,265. Some taxpayers will receive more money; others less.
The IRS said these unemployment-related refunds began being issued by direct deposit Wednesday.
And refunds by paper check will begin Friday.
Many waited a long time for refunds
The IRS has been rolling out these refunds in batches. We reported in early June, for example, that the IRS had begun issuing some of these refunds for taxes on 2020 unemployment compensation that were paid before they were excluded from taxable income by recent law changes.
The American Rescue Plan excluded up to $10,200 in 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.
The IRS first stated on March 31 that it would recalculate taxes to “automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan.”
Simple returns involving single taxpayers were to be paid out first; and more complicated returns handled later in the process.
Everyone who qualifies still hasn’t received their money. These refunds will continue to be issued throughout the summer, according to the IRS.
The IRS has said that most taxpayers do not need to do anything to receive the money, if they filed a federal income tax return before the tax law changed. The IRS did not want people to try to amend their returns unless other factors came into play.
A amended return should be filed, according to the IRS, if, as a result of the excluded unemployment compensation, taxpayers would now be eligible for deductions or credits not claimed on the original return.
George Papadopoulos, a Novi-based financial adviser and CPA, said he heard early Wednesday morning from clients who had just received the unemployment related tax refund in their bank accounts.
Many taxpayers had been frustrated by the long waits for this money.
Watch out for Child Tax Credit cash
An even bigger payout is expected this week as the federal government said it will issue money Thursday via direct deposit for the Child Tax Credit to parents who qualify.
Eligible families will receive up to $300 per month for each qualifying child ages 5 and younger and $250 per month for children ages 6 to 17. The monthly payouts will be sent by the IRS each month from July through December this year only.
For example, a family of three with very young children could be looking at an extra $5,400 in their pockets this year. Another $5,400 would be available for that family of three with very young children when they file a tax return in 2022.
Total value for the family in this example: $10,800.
The extra money for children is expected to drive up spending in many areas, including some say back-to-school sales.
The Child Tax Credit, like many things this tax season, is badly misunderstood with some parents not even realizing that money could be heading their way. The advance payments are a new twist to an expanded credit that covers children through age 17.
The credit is complicated, though, and limited by income but covers far more people than some imagine.
A survey by Ally Bank indicated that 47% of the parents who qualify based on their income and children’s ages incorrectly estimated the projected amount they should receive.
Ally’s research indicated that nearly half of eligible consumers said they are uncertain whether they qualify for the payments for the Child Tax Credit.