Yahoo Finance The IRS has more of those surprise tax refunds in the works, official says
Hundreds of thousands more taxpayers might still receive surprise tax refunds similar to the ones that went out during the spring and summer, according to an official at the IRS.
Throughout May, June and July, the government sent millions of refunds — totaling over $10 billion — to Americans who hadn't expected the windfalls. Their tax bills were reduced after they'd already paid them, thanks to a provision in the massive COVID-19 rescue bill that President Joe Biden signed in March.
Here's a look at whether you might receive some money back from the tax agency that could help you deal with expenses or pay down debt.
How to qualify for a surprise refund
This is the story behind the out-of-the-blue 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 the same as any other income. But the Biden pandemic relief package from March allowed people who claimed jobless benefits in 2020 to exclude lots of that money from taxes: up to $10,200 for individuals, and $20,400 for couples filing jointly.
By the time the president signed the American Rescue Plan into law, many people had already paid their taxes. If your income was below $150,000 last year, you collected unemployment and filed your taxes relatively early in 2021, you may have paid too much — and qualified yourself for an unanticipated refund.
The money is supposed to come automatically, based on the banking and address information from your tax return. But the refunds have been slowed by a massive backlog the IRS has been working through.
Refund distribution isn't done
In May, when the IRS first started surprising taxpayers with unplanned money back, the agency said it was looking over the returns of more than 10 million people who had paid taxes on unemployment benefits ahead of the rescue bill.
By July, the IRS said it had paid out more than 8.7 million unemployment compensation refunds worth over $10 billion. But the work wasn't finished: Officials said in a news release that the IRS would "continue reviewing and adjusting tax returns in this category" throughout the summer.
A new update has come from the National Taxpayer Advocate, whose office works independently within the IRS. Advocate Erin Collins writes in a recent blog post that the tax agency is working to pay out more of the refunds.
"It is unclear how many more accounts need to be adjusted," Collins says, while indicating that 436,000 tax returns were potential refund candidates but needed review.
The money back can be respectable. The IRS said the average refund in the most recent batch, announced on July 28, was $1,686.
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.
Cut the cost of your debt. The interest on credit cards can turn into a real money-suck 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.
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 loans, you could save thousands in interest and pay off the debt years ahead of schedule.
Refinance your mortgage, if you've got one. Close to half the homeowners who refinanced during the turbulent first year of the pandemic are now saving at least $300 a month, a recent survey found. Rates on refi loans are still historically low, so it's not too late to refinance an expensive pre-COVID loan and slash your monthly payment.
Insist on deals when you shop online. Once you’ve gotten a grip on your debt, keep your expenses down so you won't land in trouble again. Next time you're ready to shop online, stop and download a free browser extension that will automatically hunt for better prices and coupons.
Turn your pocket change into profits. If you don’t have much experience — or capital — to make money in the sizzling stock market, try a popular app that allows you to invest your "spare change". It's a way to 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.
