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Another 1.5 million people will get tax refunds this week, IRS says. Who qualifies?

This round of refunds averages around $1,600.
tax refund
The IRS said another 1.5 million people who overpaid taxes for unemployment benefits will receive refunds this week averaging more than $1,600. (Mark Lennihan | AP)

The Internal Revenue Service said Wednesday that another 1.5 million people who overpaid taxes on their unemployment benefits last year will get tax refunds, averaging more than $1,600.

This is the fourth round of refunds, with direct deposits going out Wednesday while paper checks are set to go out Friday, the IRS said in a news release.

The IRS has issued more than 8.7 million refunds since May totaling more than $10 billion, and the agency said it will “continue reviewing and adjusting tax returns in this category this summer.”

Here’s what to know about the refunds.

Who gets them

The American Rescue Plan — the $1.9 trillion COVID-19 relief packaged signed into law in March — exempted up to $10,200 in unemployment benefits received in 2020, meaning people who received jobless benefits did not have to pay taxes on compensation up to that amount.

But many people filed their 2020 income tax returns before the American Rescue Plan was enacted and therefore may have paid taxes on compensation they were eligible to have exempt.

The refunds are for those who were eligible for the exemption but already paid taxes on those unemployment funds.

Who is eligible for the exemption

The American Rescue Plan exempted portions of unemployment compensation for taxpayers who made less than $150,000 in “modified adjusted gross income” in 2020.

Those who made more than $150,000 cannot exclude any unemployment benefits from their income.

In June, the IRS sent 2.8 million refunds to eligible taxpayers but said more were qualified.

During this round, the IRS said it identified around 1.7 million taxpayers who may be “due an adjustment” — roughly 1.5 million of whom should expect a refund this week.

How much the refunds are worth

The average refund sent this week is worth $1,686, the IRS says. Some taxpayers will get more and some will get less.

The $10,200 is just the maximum amount of compensation that can be excluded from taxable income, not the amount that taxpayers should expect from the refunds.

How the payments work

The IRS says most taxpayers owed a refund don’t need to do anything to receive it.

People “due an adjustment” will either receive a refund for the amount they overpaid or have it applied to “other outstanding taxes” or “federal or state debts owed.”

“Taxpayers will generally receive letters from the IRS within 30 days of the adjustment, informing them of what kind of adjustment was made (such as refund, payment of IRS debt payment or payment offset for other authorized debts) and the amount of the adjustment,” the IRS says.

People who, because of the excluded unemployment compensation, are eligible now for deductions or credits they didn’t claim on their original tax return “should file a Form 1040-X, Amended U.S. Individual Income Tax Return.”

The IRS says taxpayers should file an amended return if they didn’t “submit a Schedule 8812 with the original return to claim the Additional Child Tax Credit and are now eligible for the credit,” and they should also amend their returns if they didn’t “submit a Schedule EIC with the original return to claim the Earned Income Tax Credit (with qualifying dependents) and are now eligible.”