Unemployment rates will take a while to come down: Former Chase economist
Former Chase chief economist Anthony Chan on high unemployment claims and the labor market recovery.
Millions of Americans who collected unemployment benefits last year and paid taxes on that money are in line to receive a federal refund from the IRS this week.
The agency said Tuesday that it's processing returns for 4 million people who paid taxes on jobless aid before mid-March, when Democrats passed a stimulus bill that included a tax break for out-of-work Americans.
The law waived taxes on up to $10,200 in 2020 unemployment insurance benefits for individuals who earn less than $150,000 a year. The IRS has estimated that up to 13 million Americans may qualify for the tax break.
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Refunds are expected to land in Americans' bank accounts on Wednesday, while paper checks could arrive as soon as Friday. The average refund is worth about $1,265.
The agency – which already delivered refunds in May and June – previously said it will do the recalculation in two phases, beginning with taxpayers who are eligible for the $10,200 exclusion. It will then proceed to calculate the new refund for married couples who are eligible for the $20,400 exclusion and other more complex returns.
"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 agency said.
UNEMPLOYMENT TAX REFUNDS START LANDING IN AMERICANS' BANK ACCOUNTS
You're eligible for the IRS tax refund if your household earned less than $150,000 last year, regardless of filing status. Workers can exclude the aid when calculating their modified adjusted gross income — meaning that an individual who earned $140,000 last year but collected $10,200 in jobless aid is still eligible to take advantage of the tax break.
The break applies to this tax-filing season, which began Feb. 12 and ended May 17.
The federal government and most states count unemployment benefits, including the extra money distributed through federal aid programs, as taxable income. But unlike a typical paycheck, taxes aren't automatically deducted from jobless aid, creating a potential for refund shock for millions of out-of-work Americans even though they lost their job.
About 40 million people collected jobless aid last year, according to The Century Foundation. The average person received $14,000 in benefits.
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Still, the bill that Biden signed did not protect the money from garnishment, meaning that some Americans could see a smaller check – or no money at all.
The IRS has cautioned that the refund is is "subject to normal offset rules," the IRS said, meaning that it can be used to cover "past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans)."
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