IRS starts sending refunds to those who overpaid taxes on unemployment benefits

IRS is holding on to millions of Americans' tax returns, delaying refunds

Americans who overpaid taxes on unemployment benefits this year will start to receive refunds this week, the Internal Revenue Service announced Friday.

Under the American Rescue Plan, workers who received $10,200 or less in unemployment benefits last year don't have to pay taxes on that money, as they normally would. However, Congress passed the law change in March, after millions of people had already filed their tax returns. As many as 10 million people potentially overpaid their taxes and could be in line for refunds, the IRS said Friday.

The agency has begun correcting those tax returns and issuing refunds. It's doing the work in phases, starting with single taxpayers with simple returns — such as those who didn't claim children or refundable tax credits.

More complex returns, including those filed by married couples filing jointly, will take until the end of the summer to correct, the IRS said.

Taxpayers who overpaid don't need to do anything. The IRS said it is reviewing and correcting returns "to determine the correct taxable amount of unemployment compensation and tax." Not all people in that bucket will receive more money, the agency said, noting that reviews "could result in a refund, a reduced balance due or no change to tax."

Taxpayers who provided bank information when they filed their returns will get any money due back via direct deposit. Those who did not will get a paper check mailed to their address, the IRS said.

However, people with debts may not see any of the additional refund, the IRS noted. Something called the "Treasury Offset Program" allows the government to seize tax refunds to pay old debts, such as child support or student loans

The additional refunds "are subject to normal offset rules," the IRS noted, and can be used to pay off "past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support or certain federal nontax debts (i.e., student loans)."

Those affected will receive a notice in the mail letting them know their returns have been adjusted, the IRS said.

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