May 5 (UPI) -- Millions of Americans who have filed tax returns for 2020 and paid taxes on unemployment benefits will soon get a refund from the IRS, through President Joe Biden's American Rescue Plan.
Normally, jobless Americans who receive unemployment compensation are required to pay taxes on it. They have the option to pay when they receive the money or settle up when they file their federal tax returns.
Because many millions were out of work in 2020 due to COVID-19, Biden included in his rescue plan an exemption for unemployment taxes for up to $10,200 per person who earned less than $150,000 in adjusted gross income. More than 23 million people filed for unemployment last year.
Because the American Rescue Plan wasn't passed until March, millions had paid those unemployment taxes for 2020. Beginning this month, they will start to get the money back, the IRS said.
"[The IRS] will take steps to automatically refund money this spring and summer to people who filed their tax return reporting unemployment compensation before the recent changes made by the American Rescue Plan," the agency said in a statement after Biden's $1.9 trillion coronavirus relief package was signed into law.
"The legislation excludes only 2020 unemployment benefits from taxes."
Though it did not announce a specific start date for the refunds, the IRS said it would begin this month and continue into the summer.
In its announcement, the IRS said distribution of payments will be conducted in two phases, beginning with those eligible to exclude up to $10,200 of unemployment benefits from their taxes.
The first phase will include Americans who are single or are married but filed separately. The second phase will include those with more complex tax returns.
It was not immediately clear which phase includes married couples in which only one spouse received unemployment benefits, which was the case for millions.
The special exemption this year means some Americans will receive two tax refunds from the IRS.
For those who owe back taxes, the refund will automatically be applied to settle that debt, the agency said.
The IRS said taxpayers do not need to file an amended return to get the refunds. Instead, it will calculate the appropriate amount -- particularly because the change may alter other details up and down the tax return.
"For example, the IRS can adjust returns for those taxpayers who claimed the Earned Income Tax Credit and, because the exclusion changed the income level, may now be eligible for an increase in the EITC amount, which may result in a larger refund," the IRS said.
"However, taxpayers would have to file an amended return if they did not originally claim the EITC or other credits but now are eligible because the exclusion changed their income."
The IRS said taxpayers may also want to examine their state tax returns for related changes.
The agency said taxpayers who received unemployment benefits last year but have not yet filed their return for 2020 don't need to do anything special. Software changes now include the ARP exemption as part of the filing process and will be calculated properly.
The deadline for filing taxes is May 17.