Hundreds of thousands of Americans still reeling financially from the COVID-19 crisis have just been sent surprise tax refunds totaling more than half a million dollars, the IRS has announced.
Unexpected direct deposits and paper checks have gone to people whose paid their taxes and then had their bills reduced because of a provision in the massive pandemic rescue bill President Joe Biden signed way back in March.
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 should be on the lookout for surprise cash from the IRS.
How to qualify for the latest tax refunds
As employers cut back on hours or shut down last year due to COVID-19, millions of Americans found themselves out of work — and filed for unemployment benefits.
Normally, unemployment checks are taxed just like any other income. But Biden’s pandemic relief package allowed people who claimed jobless benefits in 2020 to exclude piles of that money 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’s bill passed in mid-March, many people had already filed their 2020 taxes. If your income was under $150,000 last year, you collected unemployment and submitted your return relatively early, you may have overpaid your taxes — and qualified yourself for unexpected money back.
The IRS says it has identified over 16 million taxpayers who may be eligible for refunds, but the payments have been slowed by a massive backlog at the tax agency. Since May, it has been using the banking and address information from tax returns to distribute the cash.
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.
Refunds average close to $1,200
Some 430,000 refunds totaling more than $510 million have been paid out in the latest batch, the IRS said in a news release this week. The amount per taxpayer this time has averaged $1,189.
About 40 million Americans received unemployment payments in 2020, according to the Century Foundation. The average individual beneficiary got $14,000 — and $10,200 became tax-free, leaving only $3,800 that was taxable.
The tax agency says it’s nearly finished reviewing returns and correcting overpayments related to unemployment. It’s now focusing on more complex tax returns; officials say they expect to issue another batch of surprise refunds before the end of the year.
So far, the IRS has issued more than 11.7 million tax refunds on 2020 unemployment benefits, for a total of more than $14.4 billion.
The deadline to file taxes this year was May 17. If you missed that, the IRS urges you to file your taxes now, not only because you’ll significantly reduce your tax liability if you received unemployment payments last year, but also because you may find you’re eligible for other pandemic benefits.
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 potentiall pay off the debt years ahead of schedule.
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Demand 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. Finally, 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 turn your pennies into profits.
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
