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Unemployed workers could get more money from the IRS.
Sarah Tew/CNET

President Joe Biden’s American Rescue plan added a $10,200 tax exemption for those who received unemployment benefits in 2020 to go along with more weeks of a $300 bonus payment, a third stimulus check and a boost to the child tax credit. There was some confusion over how the tax break might work, but the IRS says it will handle the exemption and send out refunds if needed.

The agency made an update Wednesday regarding the unemployment benefits tax exemption in Biden’s Rescue Plan, saying it will recalculate taxes for people who received unemployment compensation in 2020 and already filed their tax return.

Due to the coronavirus pandemic, 23 million Americans filed for unemployment last year, according to the Bureau of Labor Statistics. Under the Pandemic Unemployment Assistance, or PUA, created under the CARES Act last March, this included those who were laid off from their job as well as gig workers, contractors and self-employed people who don’t normally qualify for unemployment insurance.

Here’s what to know so far

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“This new clarification from the IRS is good news for the millions of taxpayers impacted, but may still be confusing,” said Mark Steber, chief tax information officer for Jackson Hewitt. “Some taxpayers may have questions as to the timing of any payment and whether it will come in a check or other form. The IRS is still providing clarification on these and other questions related to the just announced program. Once taxpayers receive their automatic payments in the coming weeks and months it may be a good idea to check in with a trusted tax pro to make sure the IRS computed their amount correctly.”

For more details, here are seven ways to get more money back on your 2020 tax return, everything about the child tax credit for up to $3,600 per child and what to know about the new May 17 tax deadline.

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