IRS to recalculate taxes on 2020 unemployment benefits, and automatically to issue refunds

IRS to recalculate taxes on 2020 unemployment benefits

The IRS today announced that it will “take steps to automatically refund money this spring and summer” to individual taxpayers who filed their tax returns and reported unemployment compensation as taxable income before enactment of legislation in March 2021 that excludes from income tax unemployment benefits received in 2020.


The American Rescue Plan (enacted March 11, 2021) allows individual taxpayers who earned less than $150,000 in modified adjusted gross income in 2020 to exclude unemployment compensation in amounts of up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers.

As explained in the IRS release—IR-2021-71 (March 31, 2021)—because the legislative change was enacted after some taxpayers had filed their tax returns, the IRS announced it will make the appropriate change to the tax returns and that this may result in refunds for certain taxpayers.

  • The first refunds are expected to be made in May 2021 and will continue into the summer.
  • For those taxpayers who already have filed and determined their taxes based on the full amount of unemployment compensation, the IRS will determine the correct taxable amount of unemployment compensation and tax. Any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.
  • For those taxpayers who have already filed, the IRS will perform these recalculations in two phases, starting with those taxpayers eligible for the up-to-$10,200 exclusion. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the up-to-$20,400 exclusion and others with more complex returns.

The IRS release states that taxpayers do not need to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return (for instance, the earned income tax credit (EITC)). 

© 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organization please visit

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.

Connect with us