Were you unemployed in 2020? Here’s why you might see a tax refund in your bank account
Unemployed last year in California for a long period of time? You may qualify for a federal tax refund.
If you filed your federal taxes before mid-March, you should probably be seeing that refund from the Internal Revenue Service in your bank account soon, if you haven’t already.
The average refund is $1,265, and it’s the result of the COVID-related economic plan Congress passed in March.
The law allows taxpayers to exclude from income up to $10,200 in unemployment compensation they received last year, as long as their modified adjusted gross income was less than $150,000.
The IRS began sending out a new round of refunds last week. Direct deposit of the money started Wednesday, and paper checks were mailed Friday. The IRS expects about 4 million people nationwide to get refunds this month.
In most cases, taxpayers don’t need to do anything in order to get the money. The IRS has been looking over tax filings made before President Biden signed the American Rescue Plan into law March 11.
“For taxpayers who overpaid, the IRS will either refund the overpayment, apply it to other outstanding taxes or other federal or state debts owed,” the agency said.
In California, the maximum weekly amounts varied during 2020. It’s currently $750 until early September.
Tax refund Q and A
Some frequently asked questions, and answers from the IRS, California Employment Development Department and Perry Ghilarducci, a certified public accountant and principal at Avaunt Ltd CPAs & Consultants in Sacramento:
Q. How do I know how much I received in unemployment compensation last year?
A. The state’s EDD should have sent you a Form 1099G listing the amount. If you did not receive that form, visit the EDD website, which has instructions on how to proceed.
Q. How do I calculate how much of a break I can get?
A. The IRS has a worksheet available, but it can be hard to understand. The IRS urges taxpayers to file electronically, noting that calculations can be made automatically. It urges people earning $72,000 or less to use its Free File Program.
Q. I haven’t received a refund yet, but I did file my taxes before mid-March. Why the delay?
A. Timing of the refund depends on several factors, such as whether you filed electronically or on a paper form, or whether you have a direct deposit number on file with the IRS.
Q. Both my spouse and I were unemployed and received more than $10,200 each in unemployment compensation. Do we both get the tax break?
A. Yes, as long as you’re under the income limit.
Q. Suppose I earned more than $150,000. Do I pay tax on the benefits?
A. Yes. If your modified adjusted gross income is $150,000 or more, you can’t exclude any unemployment compensation.
Q. What if I got more than $10,200 in unemployment benefits but earned less than $150,000. Do I owe any tax?
A. Yes, you would owe tax at the appropriate rate on the compensation of more than $10,200.
Q. What is “modified adjusted gross income?”
A. From Ghilarducci: “Modified adjusted gross income is your adjusted gross income for 2020 reported on Line 11 of Form 1040, 1040-SR or 1040-NR minus the total unemployment compensation reported on Schedule 1, Line 7. There is a worksheet in the Form 1040/1040-SR instructions Schedule 1 to figure your modified adjusted gross income.”
Q. Do I have to pay California state income tax on any of the unemployment compensation?
A. No. Even if the benefits come from federal funds, such as Pandemic Unemployment Assistance or Pandemic Emergency Unemployment Compensation, you pay no state income tax on unemployment compensation.
