2020 unemployment compensation exclusion FAQs — Topic G: Receiving a refund, letter, or notice

These updated FAQs were released to the public in Fact Sheet 2022-39 PDF, December 2, 2022.

Q1. Will I receive a $10,200 refund? (updated March 23, 2022)

A1. No. The American Rescue Plan Act allows eligible taxpayers to exclude up to $10,200 (up to $10,200 for each spouse if married filing jointly) from their gross income, which will likely lower the tax liability on their 2020 tax return. The exclusion from gross income is not a refundable tax credit. However, the exclusion could result in an overpayment (refund) of the tax paid on the amount of excluded unemployment compensation.

Q2. If the exclusion adjustment results in an overpayment (refund), how will it be issued to me? (updated December 2, 2022)

A2. Any resulting overpayment of tax will be either refunded or applied to your other outstanding tax liabilities.

Q3. Did the IRS send a letter or notice if they made changes to my unemployment compensation? (updated December 2, 2022)

A3. Yes. We sent a notice if we corrected your account for the unemployment compensation exclusion. We mailed the notice to the address we had on file for you, usually within 30 days of when the correction was made. Please keep this notice for your records.

The IRS cannot reissue the notice. If you didn’t receive or can’t find your notice, you can view your 2020 tax records in your Online Account or request that a 2020 tax account transcript be mailed to you.

Q4. If the exclusion adjustment results in a refund, will the IRS use the refund to pay (offset) any unpaid debts I may have? (added April 29, 2021)

A4. Yes. Unpaid debts include past-due federal tax, state income tax, state unemployment compensation debts, child support, spousal support, or certain federal nontax debts, such as student loans. If the refund is offset to pay unpaid debts, a notice will be sent to inform you of the offset.

Q5.I didn't claim the exclusion for up to $10,200 when I filed my 2020 federal income tax return and I owed tax shown on my return and paid it in full, but the exclusion adjustment results in a refund. Will my payment also be refunded? (updated December 2, 2022)

A5. If you owed on your original return and paid the amount in full, the refund from the unemployment compensation exclusion adjustment will take into account the additional payment you made to your account. The additional payment will be processed and any overpayment resulting from the exclusion adjustment will be refunded when your account is corrected but can be applied to other federal or state debts you owe.

Q6. What if the exclusion adjustment reduces (or increases) the amount I still owe from my original return, but I can't pay in full? (added June 25, 2021)

A6. It's highly recommended that you pay the amount you owe in full to minimize any penalties and interest. If you can't pay in full, pay as much as you can now and then apply for a short-term or long-term payment plan if you haven't done so already. Refer to Paying Your Taxes for additional information, including about the available methods to pay.

Q7. I received a notice CP 21 or 22 saying that my 2020 account was adjusted due to the exclusion adjustment. Do I need to respond or take any action? (added June 25, 2021)

A7. The notice is informing you that we changed your tax return to correct your unemployment compensation because of recent changes in tax laws, rulings, or regulations and as a result, you'll receive a refund, you'll have a reduced balance due, or neither (no refund due nor amount owed).

• If you agree with the changes, you don't need to respond but we recommend that you keep the notice with a copy of your tax return for your records.
• If you disagree with the changes, you may call the toll-free number listed on the top right corner of your notice.

If you are due a refund, allow the timeframe provided in the notice to receive it. If you owe, pay the amount you owe by the due date on the notice's payment coupon. Make payment arrangements if you can't pay the full amount you owe. Refer to Paying Your Taxes for additional information, including about the available methods to pay.

Q8. Why did I receive an IRS CP08 notice saying I may be eligible for the Additional Child Tax Credit? (updated December 2, 2022)

A8. Because we made changes to your 2020 tax account to exclude unemployment compensation, you may be eligible for the Additional Child Tax Credit. In December 2021 and July 2022, the IRS sent the CP08 notice to individuals who did not claim the credit on their return but may now be eligible for it. This notice is not confirmation that you are eligible. You are not required to file an amended return to claim the Additional Child Tax Credit if you reply to the CP08 notice. See Understanding Your CP08 Notice for more information.

Q9. Why did I receive an IRS CP09 notice saying I may be eligible for the Earned Income Credit? (updated December 2, 2022)

A9. Because we made changes to your 2020 tax account to exclude up to $10,200 of unemployment compensation, you may be eligible for the Earned Income Credit. In December 2021 and July 2022, the IRS sent the CP09 notice to individuals who did not claim the credit on their return but may now be eligible for it. This notice is not confirmation that you are eligible. You are not required file an amended return to claim the Earned Income Credit if you reply to the CP09 notice. See Understanding Your CP09 Notice for more information.

Q10. I'm married, do not live in a community property state and filed a joint 2020 tax return with my spouse. We received a notice stating the IRS corrected our return to allow the unemployment compensation exclusion, but we believe the exclusion amount is too much. Do we need to file an amended return or pay back all or some of the refund we received? (added January 7, 2022)

A10. The IRS moved quickly to implement the provisions of the American Rescue Plan Act (ARPA) of 2021. ARPA allows eligible taxpayers to exclude up to $10,200 of unemployment compensation on their 2020 income tax return. For married taxpayers, separate exclusions can apply to the unemployment compensation paid to each spouse. In some cases, when Form 1099-G, Certain Government Payments, information was not available, the IRS automatically allowed an exclusion amount of up to $20,400 for married individuals who live in a non-community property state and who filed a joint 2020 tax return when:

• The total unemployment compensation was $10,201 or more;
• The modified adjusted gross income of the taxpayers was less than $150,000; and
• Form 1099-G data was not available at the time when the IRS completed the correction. 

If the IRS determined you qualified for the exclusion based on the criteria above and as a result you received a refund, then you are not required to pay back all or part of the refund.

There is no need to contact the IRS or to file an amended return.

If you're married and live in community property state, refer to Q4 under Topic A: I'm married and live in a community property state. Am I eligible for the exclusion?