IRS Completes Final Corrections on 2020 Unemployment Compensation Tax Payments, IR-2023-2

The IRS recently completed the final corrections of tax year 2020 accounts for taxpayers who overpaid their taxes on unemployment compensation received in 2020. This resulted in nearly 12 million refunds totaling $14.8 billion, with an average refund of $1,232. The American Rescue Plan Act of 2021 ( P.L. 117-2), which became law in March 2021, excluded up to $10,200 in tax year 2020 unemployment compensation from taxable income calculations. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $150,000.

Many of the adjustments included corrections to the (1) Earned Income Tax Credit; (2) Recovery Rebate Credit; (3) Additional Child Tax Credit; (4) American Opportunity Tax Credit; (5) Premium Tax Credit; and (6) Advance Premium Tax Credit. Eligible taxpayers whose accounts were not corrected by the IRS may need to file an amended 2020 tax return to claim the exclusion and any credits affected by the exclusion. If they do need to amend tax year 2020 Forms 1040 and 1040-SR, taxpayers can file Form 1040-X, Amended U.S. Individual Income Tax Return, electronically with tax filing software. More information can be found https://www.irs.gov/newsroom/2020-unemployment-compensation-exclusion-faqs.