Some 1.5 million Americans still reeling financially from the COVID crisis are being sent surprise tax refunds this week, the IRS says.
Unexpected direct deposits and paper checks are going out to people whose tax bills were reduced after they'd already paid them, because of a provision in President Joe Biden's massive pandemic rescue bill from March.
A windfall from the IRS might be just what you need right now to deal with expenses or pay down debt. Here's a look at whether you might soon receive cash back from the IRS.
How to qualify for the latest tax refunds
As employers cut back on hours or shut down last year due to COVID-19, millions of Americans who found themselves out of work filed for unemployment, including some who might still be looking for a job.
Normally, unemployment checks are taxed just like any other income. But Biden's pandemic relief package allowed people who claimed jobless benefits in 2020 to exclude lots of that money from taxes: up to $10,200 for individuals, and $20,400 for couples who file jointly.
By the time the president signed the bill in mid-March, many people had already filed and paid their taxes. If your income was below $150,000 last year and you collected unemployment, you may have overpaid your taxes — and find a surprise refund in your bank account or mailbox.
Americans who paid too much tax on their jobless benefits will start getting money back via direct deposit on Wednesday, the IRS says. Whenever the tax agency doesn't have a recipient's banking information, it issues a paper check — and those are scheduled to begin going out on Friday.
If you've been hoping Congress will approve another stimulus check, that's looking doubtful — so one of these refunds might be the next best thing.
Refunds average close to $1,700
About 40 million Americans received unemployment payments in 2020, according to the Century Foundation. The average individual beneficiary got $14,000 — and $10,200 has become tax-free, leaving only $3,800 that's taxable.
Some 1.5 million refunds are being paid out in the latest round, in amounts averaging $1,686, the IRS said in a news release on Wednesday. Officials say the average refund amount is higher this time around because the tax returns are more complex than in earlier rounds.
Since May, the IRS says it has issued more than 8.7 million tax refunds on 2020 unemployment benefits, totaling more than $10 billion.
The tax agency says it will continue to issue refunds throughout the summer. If it turns out you're owed money, you'll get it automatically.
The deadline to file taxes this year was May 17. If you missed that, the IRS urges you to file your taxes now, not only because you'll significantly reduce your tax liability if you claimed any unemployment benefits last year, but also because you may qualify for other pandemic benefits.
Keep in mind that although the government has waived some federal taxes on your jobless benefits, your state may charge income tax on all unemployment payments you received.
What if you're not likely to get a refund?
If your bank account could use an infusion of cash, but you're not likely to get a surprise tax refund, here are some steps to give your finances a boost on your own.
You could be overpaying for car insurance by as much as $1,100 a year, if you haven’t looked around for a more affordable policy in a while. Slash your premium by shopping around for a better deal. If you're a homeowner, use the same comparison-shopping technique to find a lower price on home insurance.
While credit cards are convenient when you’re short on cash, the interest can turn into a real money-suck over time. If you leaned too heavily on your plastic during the pandemic, a lower-interest debt consolidation loan can cut your interest costs and help you pay off your debts faster.
Once you’ve gotten a grip on your debt, make sure you’re keeping your daily expenses down so you won't land in trouble again. Next time you're ready to shop online, stop and download a free browser extension that will automatically scour for better prices and coupons whenever you're at the virtual checkout.
Finally, if you don’t have much experience — or capital — to make money in the red-hot stock market, download a popular app that allows you to invest your "spare change" and turn your pennies into profits.