Millions of Americans still reeling financially from the COVID crisis are being sent surprise tax refunds this week, the IRS says.
Unexpected direct deposits and paper checks are going out to people whose tax bills were reduced after they’d already paid them, under a provision in President Joe Biden’s massive pandemic rescue bill from March.
A windfall from the IRS might be just the cash infusion you need to help you deal with expenses or pay down debt. Here’s a look at whether you might be getting some cash back from the IRS.
How to qualify for one of these tax refunds
As employers cut back on hours or shut down due to COVID-19 last year, millions of Americans lost their jobs and filed for unemployment, including some who might still be looking for work.
Normally, unemployment checks are taxed the same as any other income. But Biden’s pandemic relief package allowed those who claimed jobless benefits in 2020 to exclude big chunks of the money from taxes: up to $10,200 for individuals, and $20,400 for couples who file jointly.
By the time the president signed the bill in mid-March, many people had already filed and paid their taxes. If your income was below $150,000 last year and you collected unemployment, you may have overpaid what you thought you owed in taxes — and find a surprise refund in your bank account or mailbox.
Americans who paid too much tax on their unemployment will start getting money back via direct deposit on Wednesday, the IRS says. Whenever the tax agency doesn’t have a recipient’s banking information, it issues a paper check — and those are scheduled to begin going out on Friday.
If you’ve been hoping Congress will approve another stimulus check, one of these refunds might be the next best thing, for now.
Refunds average about $1,265
Some 40 million Americans received unemployment payments in 2020, according to the Century Foundation. The average individual beneficiary got $14,000 — and $10,200 of that is now tax-free, leaving only $3,800 that’s taxable.
Some 4 million refunds are being paid out in this round, in amounts averaging $1,265, says the IRS release. Some people will get more, some less. A similar batch in early June provided 2.8 million refunds to people who overpaid taxes on 2020 unemployment benefits.
The tax agency says it will continue to issue refunds throughout the summer. If you’re owed money and have already filed your taxes, you’ll get your refund automatically.
The deadline to file taxes this year was May 17. If you missed the deadline, the IRS urges you to file your taxes now and remember that 2020 unemployment benefits of up to $10,200 are exempt from taxes. That will significantly reduce your tax liability and may qualify you for other pandemic benefits.
Keep in mind that even though the IRS has waived some federal taxes on your jobless benefits, your state may charge income tax on all unemployment payments you received.
What if you’re not likely to get a refund?
If your battered bank account would welcome a surprise tax refund, but you’re not likely to get one, there are steps you can take to give your finances a boost right now.
- If you haven’t looked around for a more affordable auto insurance policy in a while, you could be overpaying by as much as $1,100 a year. Slash your premium by shopping around for a better deal. And if you own a home, use the same technique to find a lower price on homeowners insurance.
- While credit cards are convenient when you’re short on cash, the interest can be a real money-suck over time. If you relied too much on plastic during the pandemic, a lower-interest debt consolidation loan can help slash your interest charges and pay off your debts faster.
- Once you’ve managed your debt, make sure you’re keeping your daily expenses down so you won’t land in trouble again. Next time you’re ready to shop online, stop and download a free browser extension that will automatically scour for better prices and coupons when you’re at the virtual checkout.
- Finally, if you don’t have much experience — or capital — to make money in the red-hot stock market, download a popular app that allows you to invest your “spare change” — and grow your pennies into a diversified portfolio.
Source – https://finance.yahoo.com/news/irs-paying-4m-surprise-tax-224500649.html