2020 Unemployment Compensation Exclusion FAQs — Topic G: Receiving a Refund, Letter, or Notice

Q1. Will I receive a $10,200 refund? (added April 29, 2021)

A1. No. The American Rescue Plan allows eligible taxpayers to exclude up to $10,200 (up to $10,200 for each spouse if married filing jointly) from your taxable income, thereby lowering your tax liability on your 2020 tax return. The exclusion from adjusted income is not a refundable tax credit. However, the exclusion could result in an overpayment (refund) [of income taxes/of the tax paid on the amount of excluded unemployment compensation].

Q2. If the exclusion adjustment results in an overpayment (refund), how will it be issued to me? (added April 29, 2021)

A2. Any refund resulting from the exclusion adjustment will be issued to you in one of the following ways:

  • If we have bank account information for you on file, we'll issue your refund by direct deposit to that bank account.
     
    • Note: If your account is no longer valid or is closed, the bank will return your refund to the IRS and a check will be mailed to the address we have on file for you.
       
  • If we don't have any bank account information for you, then we'll mail your refund to the address we have on file for you.

Q3. Will the IRS send a letter or notice if they make changes to my unemployment compensation? (updated June 8, 2021)

A3. Yes. We will send a notice when your account is corrected for the unemployment compensation exclusion. The notice will be mailed to the address we have on file for you. Usually, a notice of adjustment is received within 30 days of when the correction is made. Please keep this notice for your records.

Q4. If the exclusion adjustment results in a refund, will the IRS use the refund to pay (offset) any unpaid debts I may have? (added April 29, 2021)

A4. Yes. Unpaid debts include past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts, such as student loans. If the refund is offset to pay unpaid debts, a notice will be sent to inform you of the offset.

Q5.I didn't claim the exclusion for up to $10,200 when I filed my 2020 federal income tax return and I owed tax shown on my return and paid it in full, but the exclusion adjustment results in a refund. Will my payment also be refunded? (added June 25, 2021)

A5. If you owed on your original return and paid the amount in full, the refund from the exclusion adjustment will take into account the additional payment you made to your account. The additional payment will be processed and any overpayment resulting from the exclusion adjustment will be refunded when your account is corrected but can be applied to other federal or state debts you owe.

Q6. What if the exclusion adjustment reduces (or increases) the amount I still owe from my original return, but I can't pay in full? (added June 25, 2021)

A6. It's highly recommended that you pay the amount you owe in full to minimize any penalties and interest. If you can't pay in full, pay as much as you can now and then apply for a short-term or long-term payment plan if you haven't done so already. Refer to Paying Your Taxes for additional information, including about the available methods to pay.

Q7. I received a notice CP 21 or 22 saying that my 2020 account was adjusted due to the exclusion adjustment. Do I need to respond or take any action? (added June 25, 2021)

A7. The notice is informing you that we changed your tax return to correct your unemployment compensation because of recent changes in tax laws, rulings, or regulations and as a result, you'll receive a refund, you'll have a reduced balance due, or neither (no refund due nor amount owed).

  • If you agree with the changes, you don't need to respond but we recommend that you keep the notice with a copy of your tax return for your records.
  • If you disagree with the changes, you may call the toll-free number listed on the top right corner of your notice.

If you are due a refund, allow the timeframe provided in the notice to receive it. If you owe, pay the amount you owe by the due date on the notice's payment coupon. Make payment arrangements if you can't pay the full amount you owe. Refer to Paying Your Taxes for additional information, including about the available methods to pay.