The tax season ended last April 18, yet many are still trying to get information on IRS code 971, the IRS website’s transcript for an unemployment tax refund. However, many are in for a disappointment since there is no tax break applicable on unemployment benefits availed in 2021. Anyone who received notice about unemployment benefit tax refund are presumably, individuals who filed early in 2021, before Congress approved the unemployment benefit tax break.
What Exactly is the Unemployment Benefit Tax Break
Ordinarily, unemployment benefits availed while looking for a new employer is subject to tax. Unemployment benefits are regarded as cash advances from the government administered Unemployment Insurance Funds. The funds therefore are still taxable as income when availed.
However, the COVID-19 health crisis was an extraordinary condition that caused workers to lose their jobs. The crisis forced them to avail of unemployment benefits since non-essential businesses had to shut down.
Nevertheless, The American Rescue Plan Act approved by Congress included a suspension of the federal tax imposed on availed unemployment benefits (UBs) of up to $10,200. Waiver of the federal tax applied only to UBs claimed in year 2020 on a per person basis, and for members of households with less than $150,000 in annual income.
During the 2021 Tax Season, those who received UB Tax Refunds are those who collected UBs net of withholding tax. The tax withheld therefore have been reversed and sent as refunds by the IRS, in compliance with the tax break ordered by Congress.
This means those who received UB for a full gross amount did not pay withholding taxes. They were therefore not eligible to receive UB refunds during the 2021 tax season. as taxes were not paid in advance. According to Century Foundation’s Unemployment Benefit expert, Andrew Stettner, about 25 million jobless people availed the benefits in 2020. However, less than 40% of those who collected UBs during the period paid withholding taxes.
Who Received UB Tax Refunds This 2022 Tax Season
The Democratic party was able to pass the American Rescue Plan Act only in March 2021, when many taxpayers had already filed their income tax returns.
The IRS checked their tax returns and noted that the early tax filers had no claims for refund of the taxes withheld from UBs collected in 2020. These are the group of taxpayers who received notices that their unclaimed 2021 Unemployment Benefit Refunds have already been sent by mail or have been credited in their savings account.
Readers who are not familiar on how to use the IRS website, can find a how-to guide in the Afri Online website via this page: