How to get one of these tax refunds
Millions found themselves on unemployment last year as businesses closed amid the pandemic.
Here's the story behind the surprise refunds: Millions who lost their jobs because of the pandemic last year (including some who might still be looking for work) were forced to file for unemployment as businesses closed or cut back operations.
Normally, jobless benefits are taxed like any other income. But the COVID-19 rescue package Biden signed in March makes up to $10,200 in 2020 unemployment compensation tax-free for individual taxpayers. Couples filing jointly get a $20,400 exclusion.
If you collected unemployment last year and filed taxes ahead of Biden's relief law, you may have overpaid based on what you thought you owed. So, you may have a surprise refund coming, though only if your adjusted gross income (total income minus a few deductions) was under $150,000.
Some 40 million Americans received unemployment payments in 2020, according to the Century Foundation, and the average beneficiary got $14,000. Of that, $10,200 is now tax-free — leaving only $3,800 that's taxable.
As of early June, the IRS had identified 13 million taxpayers who may be eligible for the adjustment. If you've been hoping for a fourth stimulus check, one of these refunds might be the next best thing, for now.
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Surprise refunds will keep coming in groups
The refunds are a result of the president's COVID relief law.
"The IRS plans to issue the next set of refunds in mid-June," the agency said on June 4 when it announced the first group. There's been no further word since then — meaning more taxpayers will be in for refund surprises next week, during what still might be considered mid-June.
Distribution will continue throughout the summer.
If you qualify for money back, you’ll receive the refund as a direct deposit or — if the government doesn't have your banking information — a paper check. The funds also may be applied to any taxes or other federal debts you owe. The IRS is automatically issuing the refunds, so there’s nothing you need to do to get yours.
The deadline to file your 2020 taxes was extended until May 17. If you missed the deadline, you should file your taxes now — and remember that unemployment benefits of up to $10,200 from last year are exempt from taxes. That could reduce your tax liability significantly.
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 you don't think you're eligible for a refund and could use more cash right now, there are several places you might find it.
Maybe you're paying too much for car insurance. Some insurers are giving discounts to customers who are now working from home more and driving less. If your insurance company is being stingy, it's time to look around for a better deal. While you're at it, compare rates to find a lower price on your homeowners insurance — if you own a home, of course.
If you’ve been supplementing your income with credit cards, the high interest charges that come with plastic can be a real money drain over time. A lower-interest debt consolidation loan can help you slash your interest costs and pay off your debts faster.
Look for ways to save on your grocery and online shopping bills. You can download a free browser extension that will automatically scour for better prices and coupons whenever you shop online.
Finally, if you don’t have much experience — or cash — to make money in the white-hot stock market, download a popular app that allows you to invest your "spare change" — and turn pennies into a diversified portfolio.
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