Many people who were unemployed in 2020 may now want to check their bank accounts for additional tax refund money from the federal government – if they haven’t already received that money.
And if you have children, this week you have to look again for a special incentive known as a child tax deduction.
Taxpayers who filed an application earlier this year and have been waiting endlessly for tax refunds related to a change in the taxation of unemployment benefits in the 2020 tax return will see money in their accounts on Wednesday morning.
The Internal Revenue Service announced another round of tax refunds to nearly 4 million taxpayers who overpaid unemployment benefit taxes last year. Taxpayers paid too much for filing tax returns based on the old tax rules that treated all unemployment benefits as taxable income.
Refunds are for tax returns filed in February and March before tax rules changed when the U.S. bailout plan went into effect on March 11th.
The average refund is $ 1,265. Some taxpayers get more money; others less.
The IRS said these unemployment refunds were issued through direct deposit as of Wednesday.
And paper check refunds begin on Friday.
Many have waited a long time for refunds
The IRS has introduced these refunds in batches. For example, we reported in early June that the IRS had begun issuing some of these refunds for 2020 Unemployment Benefit taxes that were paid before recent legislative changes were banned from taxable income.
The American bailout plan has excluded up to $ 10,200 in 2020 unemployment benefits from calculating taxable income. The exclusion applied to individuals and married couples whose modified adjusted gross income was less than $ 150,000.
The IRS first stated on March 31 that it would recalculate taxes to “automatically return money this spring and summer to those who filed their tax returns and reported unemployment benefits prior to the recent changes to the US bailout plan.”
Simple tax returns with single taxpayers should be paid first; and more complicated returns that are handled later in the process.
Anyone who qualifies still hasn’t received their money. These refunds will be issued throughout the summer, according to the IRS.
The IRS has said that most taxpayers don’t have to do anything to receive the money if they filed a federal income tax return before the tax law was changed. The IRS didn’t want people to try to change their returns unless other factors played a role.
An amended declaration should be filed, according to the IRS, if taxpayers were now entitled to any deductions or credits that were not claimed in the original declaration due to the excluded unemployment benefit.
George Papadopoulos, a Novi-based financial advisor and CPA, said he heard from customers early Wednesday morning who had just received unemployment tax refunds in their bank accounts.
Many taxpayers were frustrated with the long wait for this money.
Watch out for cash for the child tax credit
An even bigger payout is expected this week as the federal government said it will be direct depositing money for child tax credit to qualifying parents on Thursday.
Eligible families receive up to $ 300 per month for each eligible child ages 5 and under and $ 250 per month for children ages 6-17. The monthly payouts will only be made by the IRS each month from July through December of this year.
For example, a family of three with very young children might have an additional $ 5,400 in their pockets this year. Another $ 5,400 would be available to this family of three with very young children when they file a tax return in 2022.
Total family value in this example: $ 10,800.
The extra cash for children is expected to drive spending in many areas, including some say they will be sold at the start of school.
The child tax credit, like many things this tax season, is grossly misunderstood as some parents don’t even realize that money might be on their way. The prepayments are a new twist on an extended loan that covers children up to the age of 17.
The loan is complicated and limited by income, but it covers far more people than some think.
A survey by Ally Bank found that 47% of parents eligible based on their income and the age of their children misjudged the likely amount they should receive.
Ally’s research found that nearly half of eligible consumers said they were unsure whether they were eligible for child tax credit payments.