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Another 1.5 million refunds are going out to those who paid taxes on 2020 unemployment pay

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People line up outside a newly reopened career center for in-person appointments in Louisville, Kentucky, U.S., April 15, 2021.
Amira Karaoud | Reuters

There's good news for some who claimed unemployment benefits in 2020.

The IRS is sending another 1.5 million refunds to people who were taxed on unemployment income last year before a portion of the benefits were made tax-free, the agency said in a statement.

Refunds being sent by direct deposit will start to go out Wednesday, according to the agency. Paper checks will be sent starting Friday, July 30.

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The average refund is $1,686.

Adjusting returns for unemployment

Generally, unemployment compensation is taxable. But in March, the American Rescue Plan waived taxes on the first $10,200 in unemployment income, or $20,400 for a couple who both claimed the benefit, for those who made less than $150,000 in adjusted gross income in 2020 in light of the coronavirus pandemic.

Passage of the law came after some people had already filed their 2020 returns, leaving those taxpayers wondering if they'd need to submit an amended return. The IRS later confirmed it would adjust returns and automatically send refunds to eligible taxpayers.

The first of those payments went out in May. The IRS has since sent roughly 8.7 million unemployment compensation refunds totaling some $10 billion.

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The agency will continue to adjust returns and send refunds through the summer, it said. It started the readjustment process with the simplest returns and is now moving through more complex ones.

Most people do not have to take any action or file an amended return to get a refund if they overpaid on unemployment compensation, according to the IRS. Some taxpayers who had their 2020 returns readjusted may not get a refund because the IRS first applied their overpayment to outstanding taxes or other debts owed at the state or federal level.

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