If you’re used to receiving a single refund check from the United States Treasury, you may be startled this year to continue receiving check or direct deposit payments—after you complete your personal tax return with the IRS. What is happening? The IRS is currently distributing third-round stimulus payouts, plus-up stimulus payouts to individuals who were liquidated, unemployment compensation tax refunds, and child tax credit advance payments. It’s as though the IRS operates like a cash machine. Here’s how to ensure that you’re receiving what is legally yours.
Payments made as part of the stimulus package. The IRS said today that it had distributed over 2.2 million stimulus funds (also known as economic impact payments) during the past six weeks, injecting an additional $4 billion into the US economy. The new payments increase the total number of payments allowed under the March Covid-19-relief, the American Rescue Plan, to more than 171 million — totaling more than $400 billion.
Around 1.3 million payments were made to individuals who recently filed a tax return, and over 900,000 supplemental or plus-up payments were made to individuals who previously received payments based on their 2019 tax returns but were now eligible for a new or larger payment based on their recently processed 2020 tax returns.
Tax returns on unemployment compensation. The Internal Revenue Service said this week that it will issue another batch of refunds to almost 4 million people who overpaid taxes on unemployment benefits received in 2020. The average refund is $1,265. This is in addition to the 2.8 million reimbursements issued so far. Unemployment compensation tax refunds are owed to an estimated 13 million people.
Why are there specific tax refunds for unemployment benefits? Congress exempted up to $10,200 of 2020 unemployment benefits from taxation under the American Rescue Plan. Unemployment benefits, in general, are taxed, including both basic state benefits and the additional $600 monthly CARES Act federal pandemic payments. If you earned unemployment benefits in 2020, you should have gotten a Form 1099-G detailing your compensation and any federal income taxes deducted. You are not required to request a revised form. Rather than that, the IRS is making automated adjustments to reflect the new $10,200 exclusion.
Payments of the child tax credit in advance. The American Rescue Act contained an expanded child tax credit—as well as advance payments to all qualified families equal to half of the credit. The first batch of about $15 billion in advance monthly payments reached approximately 35 million households last week. Around 86 percent of payments were made through direct deposit.
Each payment is up to $300 per month for children under the age of six and $250 per month for children aged six to seventeen. (High-income individuals get much less; for example, a married couple earning close to the $440,000 threshold would receive $3 monthly instalments.) Generally, anybody who gets a payment in July will continue to receive monthly payments for the remainder of 2021, unless they opt out. Bear in mind that the advance is just a partial payment, which means you will owe more or get a lesser refund next year when you submit your 2021 tax return.
The IRS is still attempting to reach out to the most vulnerable households. This weekend, it will host a second round of free tax preparation days for those who do not usually submit a tax return in order to get the advance payments.