Married couples who file a joint tax return must wait longer than others to get a refund on their unemployment benefits.
The dynamic is largely due to the complexity of calculating their refund relative to other taxpayers, according to tax experts and IRS officials.
Unemployment benefits are typically taxed as income. But the American Rescue Plan waived federal tax on up to $10,200 of benefits, per person, collected in 2020.
More from Personal Finance:
States must refund jobless aid they clawed back in error: Labor Department
More than 1 million new $1,400 stimulus checks have been sent
Montana opts to end $300 unemployment boost. Other states may, too
Many workers eligible for the tax break had already filed their returns by the time President Joe Biden signed the $1.9 trillion relief bill in mid-March.
The IRS is automatically sending tax refunds to such people (who essentially overpaid their taxes) starting in May.
The agency is issuing refunds in two phases and making payments into the summer. Married couples who filed jointly are generally going to be in the second phase, according to an IRS official.
It’s unclear how many taxpayers will get a refund and what share of them are married. Roughly 40 million people collected unemployment benefits in 2020, according to the Century Foundation.
It’s also unclear when the second phase of payments will start.
“I have faith the IRS will be able to accomplish this in a relatively timely manner,” Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, said. “It will just take more work to get to that point.”
Why the delay?
The delay for married couples is due to how lawmakers structured the tax break in the American Rescue Plan. That structure creates an additional step for the IRS.
The law lets each person exclude up to $10,200 of unemployment benefits from their federal taxable income for 2020. That means married couples can exclude up to $20,400 total.
However, there are cases when married couples aren’t eligible for that full amount. This is where the complexity arises.
As an example, let’s say a married couple had joint unemployment income of $20,400. At first glance, it may seem this couple would get the maximum tax break.
However, upon closer examination, one spouse got $5,000 of benefits and the other received $15,400. This couple would be able to exclude $15,200 from tax ($5,000 for one spouse plus the $10,200 limit for the other) — not $20,400.
These income distinctions won’t be evident from a joint tax return, which lumps the couple’s unemployment compensation together, Holtzblatt said.
The IRS likely must cross-reference the tax forms sent by state labor bureaus to verify unemployment income for each spouse and determine an accurate refund, she said. (It’s unclear if this is the exact method the agency will use, however, she added.)
Source: Finance - cnbc.com
