IRS sending out 4 million ‘surprise’ tax refunds this week

(NEXSTAR) — If you received unemployment compensation last year, you might be in for a surprise this week.

The Internal Revenue Service announced on Tuesday it will send out refunds this week to 4.6 million taxpayers who overpaid taxes on unemployment compensation received in 2020.

“To ease the burden on taxpayers, the IRS has been reviewing the Forms 1040 and 1040SR that were filed prior to the law’s enactment to identify those people who are due an adjustment,” the IRS said in a statement. “For taxpayers who overpaid, the IRS will either refund the overpayment, apply it to other outstanding taxes or other federal or state debts owed.”

Earlier this year, the IRS confirmed that it had identified “over 10 million” people who submitted their 2020 returns before the March 11 signing of the American Rescue Plan Act, under which the first $10,200 of unemployment compensation received in 2020 is excluded from taxable income.

According to the IRS, refunds by direct deposit will begin on July 14 and paper check refunds will begin on July 16.

“The IRS will send taxpayers a notice explaining the corrections, which they should expect within thirty days of when the correction is made,” the news release states. “Taxpayers should keep any notices they receive for their records.”

The IRS noted that any single or married individual with a modified adjusted gross income of over $150,000 is not eligible for the tax exemption. The agency also said that “not all adjustments will result in a refund.”

In some cases, taxpayers may need to file an amended return if they are now eligible for deductions or credits not originally claimed on their return.

Unemployment claims in July up slightly from pandemic low

The number of Americans filing for unemployment benefits rose slightly last week even while the economy and the job market appear to be rebounding from the coronavirus recession with sustained energy.

Thursday’s report from the Labor Department showed that jobless claims increased by 2,000 from the previous week to 373,000. Weekly applications, which generally track the pace of layoffs, have fallen steadily this year from more than 900,000 at the start of the year. The four-week average of applications, which smooths out week-to-week volatility, is now 394,500, the lowest such level since the pandemic erupted in March of last year.

The rollout of COVID-19 vaccinations is driving a potent economic recovery as businesses reopen, employers struggle to fill jobs and consumers emerge from months of lockdown to travel, shop and spend at restaurants, bars, retailers and entertainment venues.

In the first three months of the year, the government has estimated that the economy expanded at a brisk 6.4% annual rate. In the April-June quarter, the annual rate is thought to have reached a sizzling 10%. And for all of 2021, the Congressional Budget Office has projected that growth will amount to 6.7%. That would be the fastest calendar-year expansion since 1984.

The economy is recovering so quickly that many companies can’t find workers fast enough to meet their increased customer demand. On Wednesday, the government said that U.S. employers posted 9.21 million jobs in May, the most since record-keeping began in 2000.

And in June, employers added a strong 850,000 jobs, and hourly pay rose a solid 3.6% compared with a year ago — faster than the pre-pandemic annual pace and a sign that companies are being compelled to pay more to attract and keep workers.

Still, the nation remains 6.8 million jobs short of the level it had in February 2020, just before the coronavirus pandemic tore through the economy and eliminated tens of millions of jobs. And weekly applications for unemployment benefits, though down sharply from earlier peaks, are still comparatively high. Before the pandemic, they were typically coming in at only around 220,000 a week.

The total number of Americans receiving jobless aid, including supplemental federal checks that were intended to provide relief during the pandemic recession, amounted to 14.2 million people during the week of June 19, down from 33.2 million a year earlier.

Many states, though, have dropped the federal aid, responding to complaints that the generous benefits were discouraging some of the unemployed from seeking work: A total of 26 states plan to end the $300-a-week federal benefit before it ends nationally on Sept. 6. Most of those states will also cut off federal assistance to the self-employed, gig workers and people who have been out of work for more than six months.

Still, many factors other than the enhanced federal jobless benefits are thought to have contributed to the shortage of people seeking work again: Difficulty arranging or affording child care, lingering fears of COVID-19, early retirements by older workers, a slowdown in immigration and a decision by some people to seek new careers rather than return to their old jobs.

“We see weekly filings declining over coming weeks as job growth picks up, although at least some of the improvement will be due to states suspending federal support measures,″ Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a research note.

The Associated Press contributed to this story.