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IRS unemployment refund: Waiting for direct deposit or paper check? Your tax return could be flagged

Payments were supposed to continue through the summer, but hundreds of thousands of returns have been held for review and are awaiting processing.

IRS unemployment refund: Waiting for direct deposit or paper check? Your tax return could be flagged
[Photo: Sean Gladwell/Getty Images]

After several weeks of radio silence, we’re finally getting some clarity from the Internal Revenue Service (IRS) about the progress of those unemployment-related refund checks that it began sending out earlier this year.

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Well, the clarity isn’t exactly coming from the IRS. It’s coming from the Taxpayer Advocate Service, an office within the IRS that functions independently. In a blog post on Wednesday, Erin M. Collins, the national taxpayer advocate, provided an update on the 2021 tax filing season with some newly reported details about the refunds, which are being issued to millions of taxpayers who overpaid on unemployment compensation in 2020 due to changes in the tax law. Those changes excluded up to $10,200 in taxable income.

According to Collins, the IRS processed 13 million taxpayer accounts through September 3 to reflect the changes, resulting in either a refund or an adjusted tax balance. That’s the good news—at least for the people who got refunds.

Now comes the frustrating part: The IRS doesn’t seem to know how many more payments are going to be distributed. According to Collins, about 436,000 returns have yet to be processed because they’re ensnarled in the agency’s dreaded Error Resolution System, which means they have to be manually reviewed. As we wrote last week, the IRS has not published a news release about the payments since late July and has only said the process will continue through the “end of summer.” Summer ended yesterday.

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Still, the update from Collins indicates that a few hundred thousand payments could still be on the way once the IRS processes the remaining returns. Unfortunately, as she points out, there’s no good way to check on the status of these refunds, as neither the online Where’s My Refund? tool nor the IRS2Go app reflect what the IRS calls “systemic refunds.”

If you’re still expecting one of these refunds, you could try checking your tax transcript, which should update when a payment has been issued. The IRS will also send a hardcopy letter within 30 days of making the adjustment. Good luck!

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About the author

Christopher Zara is a senior staff news editor for Fast Company and obsessed with media, technology, business, culture, and theater. Before coming to FastCo News, he was a deputy editor at International Business Times, a theater critic for Newsweek, and managing editor of Show Business magazine

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