The IRS is sending out 4 million refunds this week to taxpayers who overpaid on their 2020 unemployment benefits

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Roughly 4 million refunds will be sent this week to people who overpaid taxes on their 2020 unemployment benefits, the IRS announced Tuesday.

Due to the $1.9 trillion American Rescue Plan Act, which became law in March, up to $10,200 in 2020 unemployment compensation was excluded from taxable income for individuals and married couples with modified adjusted gross income under $150,000 last year.

However, many taxpayers had already filed their tax returns before the legislation was approved by Congress and signed into law by President Joe Biden.

For taxpayers who overpaid due to the exclusion, the IRS will either refund the overpayment — as it’s doing this week — or apply it to other outstanding taxes or other federal or state debts owed.

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The IRS already issued a round of refunds related to the exclusion in May and June. The agency said it plans to continue issuing refunds throughout the summer.

The average refund is $1,265 for this tranche. Refunds by direct deposit will start July 14 and those delivered via paper check will begin July 16, the IRS said.

It’s uncertain how many people are due an adjustment or refund related to this exclusion. A May report from the Treasury Department said that about 7.3 million tax returns processed by the IRS as of early March would qualify.

The Century Foundation has estimated that about 40 million people collected jobless aid last year. Some would have gotten a bigger tax bill, or a surprise one, for 2020 without the federal tax break.

Most taxpayers who collected unemployment last year do not need not take any action. However, the IRS said that if the exclusion was not claimed on your original return and the new calculation would mean you’re now eligible for deductions or credits not claimed, you should file a Form 1040-X, which is the amended U.S. individual income tax return, the agency said.

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