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Receiving unemployment benefits does not mean that a federal income tax refund will be reduced.
A tax refund, which occurs when a tax filer overpays their federal income taxes, can be reduced to pay off money owed to the government.
Federal tax refunds can be reduced up to 100% to pay unpaid state income taxes and child support.
Does receiving unemployment benefits mean the IRS could take away your tax refund?
A post on Facebook suggests that.
The post contains a screenshot from the IRS’s app, IRS2Go, informing the user that "Your refund amount has been reduced by $13,424.40 to pay a past due obligation such as child support, another federal agency debt, or state income tax."
The Facebook user wrote: "The IRS IS NOT PLAYING ABOUT THAT UNEMPLOYMENT YALL TOOK I WISH y’all LUCK."
This post was flagged as part of Facebook’s efforts to combat false news and misinformation on its News Feed. (Read more about our partnership with Facebook.)
We asked some tax experts whether receiving unemployment benefits could lead to a reduced tax refund. They told us that if the unemployment benefits were properly claimed, a taxpayer would not have to pay them back, but would be liable for income taxes on the amount they received.
Any tax refund can be reduced because a filer owes a debt to the federal or state government or has unpaid child support, said Erica York, an economist with the Tax Foundation, a nonprofit organization that analyzes tax policy.
A refund occurs when a taxpayer has overpaid their taxes during the year or is eligible to receive refundable tax credits that exceed the amount of their tax liability, York said. Through the Treasury Offset Program, the Bureau of Fiscal Service can reduce a tax refund to recover delinquent federal nontax debt, unpaid child support, or state debt, whether from taxes or another obligation. A state debt could include fraudulently claimed unemployment compensation, which would have to be repaid.
In 2020, some states gave more money to unemployment recipients than they were eligible for, and demanded that the money be paid back, even if the recipients were not responsible for the error or knew they were being overpaid, according to the New York Times.
If the unemployment benefits were properly claimed, a taxpayer would not have to pay them back, but would be liable for income taxes on the amount they received, she said. Unemployment recipients can choose to have federal income tax withheld, at a rate of 10%, or they can make quarterly estimated payments.
If someone properly claimed unemployment benefits, and overpaid the taxes on them, the resulting refund could be reduced to satisfy unpaid government debt or unpaid child support, she said.
Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, described the IRS as the "middle man," and said that the Treasury Department’s Treasury Offset Program collects debt through reduced tax refunds.
The IRS stopped collecting income taxes on most unemployment benefits collected in 2020, but started collecting them again in the 2021 tax year.
Every tax situation is different, and refunds depend on each individual’s taxes paid, eligibility for tax credits and deductions, and a person’s particular outstanding debts to the government or unpaid child support. There is no universal tax penalty for receiving unemployment benefits.
A Facebook post suggested that a tax refund could be reduced because someone received unemployment benefits.
It appears that in the case of this Facebook post, based on the screenshot from the IRS app and the poster’s own words, someone who received unemployment benefits then had their income tax refund reduced because of an unpaid debt.
But the government does not require unemployment benefits that have been properly claimed to be paid back, and it does not reduce the amount of a tax filer’s refund if that filer does not have unpaid government debts or child support.
We rate this claim Mostly False.
Facebook post, Feb. 20, 2022.
CNBC, "Unemployment tax refunds may be seized for unpaid debt and taxes," May 18, 2021. Accessed Feb. 22, 2022.
CNBC, "Tax season is here. Don’t expect a refund for unemployment benefits," Jan. 24, 2022. Accessed March 2, 2022.
IRS.gov, fact sheet, "IRS: Expanded credits for families highlight tax changes for 2021; many people who don’t normally file should file this year," February 2022. Accessed Feb. 22, 2022.
IRS.gov, Tax Topics, "Topic No. 203 Reduced Refund," Jan. 24, 2022. Accessed Feb. 22, 2022.
Email interview, Janet Holtzblatt, senior fellow, Urban-Brookings Tax Policy Center, Feb. 22, 2022.
Email interview, Erica York, economist, Tax Foundation, Feb. 22, 2022.
Email, phone interviews, IRS spokesperson, Feb. 24, 2022.
Phone interview, John Rizzo, senior spokesperson, public affairs, U.S. Department of Treasury, March 2, 2022.
U.S. Department of the Treasury, Bureau of the Fiscal Service, fact-sheet, "Treasury Offset Program, Summary of Program Rules and Requirements." Accessed March 2, 2022.
The New York Times, "Jobless Benefits Saved Them, Until States Wanted the Money Back," Dec. 11, 2020. Accessed March 3, 2022.
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