Democrats urge IRS to help unemployment recipients use tax break

A group of about 20 House and Senate Democrats are urging the Treasury Department and IRS to “take every effort” to ensure that recipients of unemployment compensation can use a tax exemption included in the coronavirus relief law that President Biden signed Thursday.

“We recognize the challenges of implementing this change in tax law during filing season, particularly as millions of Americans have already filed their tax returns for 2020,” the lawmakers wrote in a letter sent Friday to Treasury Secretary Janet Yellen and IRS Commissioner Charles Rettig. “This underscores the need for Treasury and the IRS to take every action to ensure that all eligible individuals, including those who have already filed their 2020 tax return, are aware of and able to receive this critical relief.”

Biden’s $1.9 trillion coronavirus relief law includes a provision that makes tax-free the first $10,200 in unemployment benefits that people with income under $150,000 received in 2020. The provision was based on stand-alone legislation introduced by Sen. Dick Durbin (D-Ill.) and Rep. Cindy Axne (D-Iowa), who took the lead on the letter.

The tax exemption for some unemployment benefits has implications for the tax returns that people are filing this year. According to the letter, it could reduce tax bills for those who are unemployed by more than $1,000.

The lawmakers urged Treasury and the IRS to determine whether it would be feasible to automatically make adjustments and issue refunds to unemployment recipients who have already filed their 2020 tax returns, so that taxpayers would not need to file amended returns.

The lawmakers said that if such adjustments are infeasible, Treasury and the IRS should “provide clear, accessible information to ensure eligible taxpayers who have already filed for 2020 can file an amended return as quickly and easily as possible.”

“Treasury and the IRS should conduct a robust public awareness campaign to ensure that individuals who received unemployment benefits in 2020 are aware of this tax exclusion and understand the actions that need to be taken to receive it,” the lawmakers wrote. “This may be especially important for those who could be eligible for a larger Earned Income Tax Credit or Child Tax Credit with this exclusion, or are newly eligible for these credits.”

In addition to Durbin and Axne, signers of the letter included Senate Budget Committee Chairman Bernie Sanders (I-Vt.) and Senate Finance Committee Chairman Ron Wyden (D-Ore.).