Most taxpayers were likely not aware of many of the provisions enacted in The American Rescue Plan of 2021, which became effective March 11, 2021. This Act increased the refund or decreased the amount owed on their 2020 tax return for some taxpayers. Under the Act, one fundamental change for taxpayers related to unemployment compensation.
Specifically, the Act allowed for the exclusions of taxable income of up to $10,200 of unemployment compensation per taxpayer ($20,400 for married couples filing jointly if they both received unemployment compensation). Eligible taxpayers include those with less than $150,000 of modified adjusted income. This applies only to the 2020 tax year.
Another key change under the Act relates to the excess advance payments of the Premium Tax Credit (APTC) for tax year 2020. Previously, those taxpayers that were eligible for health insurance under the health insurance marketplace, and under-reported income, were required to repay certain prepayments of health insurance premiums or excess premium tax credits. Under the Act, those taxpayers that had excess credits were formally forgiven for 2020.
In both instances, those taxpayers who previously filed their Form 1040 prior to passing the Act, or were not aware and filed incorrectly, are now eligible for refunds, a reduced balance due, or possibly no change in taxes. Some taxpayers may have no change in their tax liability.
The IRS is currently in the process of issuing refunds to those who had filed their returns prior to March 11, 2021, which were impacted and eligible for the reduction in income. Refund amounts vary per taxpayer as adjustments could result in a refund, reduced balance due, or no change whatsoever. The simplest of returns will be processed first, and the more complex returns last.
This process is expected to last throughout the summer due to the high volume of returns requiring adjustments. If the IRS has made a change to your return, you should receive a notice within 30 days of when the corrections have been made. This notice should explain the revisions to give you a better understanding.
For more information on the refunds and corrections, please visit the IRS website or go to https://www.irs.gov/newsroom/irs-begins-correcting-tax-returns-for-unemployment-compensation-income-exclusion-periodic-payments-to-be-made-may-through-summer.