Since May, the IRS has paid billions of dollars in tax refunds to Americans who hadn’t expected to get money back. Direct deposits and paper checks have been going out to people whose 2020 tax bills were reduced after they’d already paid them.
The tax agency just indicated that even more of these surprise refunds are coming this year. Taxpayers recently received the latest batch: more than 400,000 payments totaling over half a billion dollars.
A windfall from the IRS might be just what you need right now to deal with expenses or pay down debt.
Here’s a look at whether you might be surprised with some tax money put back in your pocket.
Will you qualify for a surprise refund?
The refunds are related to last year’s surge in unemployment during the onset of the pandemic. The economy lost a record 20.5 million jobs in April 2020 as America’s jobless rate soared to 14.7%. New claims for unemployment benefits also surged.
Normally, unemployment checks are taxed the same as any other income. But President Joe Biden’s COVID-19 rescue package from March of this year allowed people to exclude piles of those benefits from taxes: up to $10,200 for individuals and $20,400 for couples who file jointly.
The hiccup for the IRS was that by the time Biden signed the relief bill, in mid-March, many people had already filed their 2020 tax returns. As a result, more than 16 million Americans paid too much tax on their unemployment, IRS officials say.
The agency has slowly been going through those returns and paying out refunds. If you’ve been hoping Congress will approve another stimulus check, that’s looking very unlikely — so one of these refunds might be the next best thing.
More refunds are on the way
In the latest wave, taxpayers got around 430,000 refunds worth more than $510 million, the IRS has announced. And, the agency says more surprise payments are on the way.
“The review of returns and processing corrections is nearly complete as the IRS already reviewed the simplest returns and is now concentrating on more complex returns,” officials say in a news release. “The IRS plans to issue another batch of corrections before the end of the year.”
If the tax agency discovers you’re still owed a refund, or “correction,” the money should come automatically, based on the banking and address information from your tax return. But the payments have been slowed by a massive backlog the IRS has been working through.
Already, the IRS has issued more than 11.7 million tax refunds on 2020 unemployment benefits, for a total of more than $14.4 billion.
What if you’re not likely to get a refund?
If your bank account could use an infusion of cash, but you’re not likely to get a surprise tax refund, here are some steps to give your finances a boost on your own.
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Cut the cost of your debt. Though credit cards are convenient when you’re short on cash, the interest can turn into a serious financial drain over time. If you leaned too heavily on your plastic during the pandemic, a lower-interest debt consolidation loan can cut your interest costs and help you pay off your debts faster.
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Tame your student loans. Americans are saddled with nearly $139 billion in student loan debt owed to banks and other private lenders, according to data firm MeasureOne. But interest rates on student loan refinances are close to all-time lows. By refinancing your student loan, you could save thousands in interest and potentially pay off the debt years ahead of schedule.
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Get deals when you shop online. Once you’ve gotten a grip on your debt, then work on keeping your daily expenses down. Next time you’re ready to shop online, you might stop and download a free browser extension that will automatically scour for better prices and coupons.
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Turn your pocket change into profits. If you don’t have much experience — or capital — to make money in the sizzling stock market, download a popular app that allows you to invest your “spare change”, and grow your pennies into a portfolio.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
