Here's What You Need to Remember: Important to note, any refunds issued will be subject to normal offset rules, meaning that they can be used to offset unpaid debts or payments including late federal or state income tax, state unemployment compensation debts, child support, spousal support, and other federal nontax debts such as student loans.

Tax season is winding down, with the IRS’ extended tax deadline of May 17 now upon us. For the IRS, however, this does not mean that its work is done. The agency is still working through a backlog of unprocessed tax returns, likely delaying the distribution of tax refunds for many Americans. This includes the distribution of one, particularly important refund.

The American Rescue Plan, the $1.9 trillion piece of COVID-relief legislation passed in March, brought with it a number of measures aimed at supporting Americans through the financial impacts of the ongoing pandemic and at jumpstarting an economic recovery. This included the distribution of a third-round of direct federal stimulus payments worth up to $1,400, as well as a number of other important direct and indirect benefits.

Unemployment assistance was a major point of focus for the American Rescue Plan, and the bill included an extension of $300 weekly federal unemployment payments through Labor Day. In addition, the bill also contained a provision aimed at providing further relief for those Americans who have received unemployment assistance during the pandemic.

Typically, unemployment compensation is considered taxable. The American Rescue Plan, however, created a $10,200 tax credit for those people who paid taxes on unemployment benefits when filing their 2020 tax returns.

Following the bill’s passing, the IRS began a review of tax returns – including those submitted prior to the legislation’s passing – to determine eligibility for the credit. According the IRS, at least 7.3 million Americans are eligible based on their 2020 tax returns.

Now, the IRS is beginning to distribute refunds to those who it determined to be eligible. The IRS will automatically make the necessary changes to relevant tax returns with a phased approach. The first phase, now underway, will involve corrections made to the simplest returns, while the second phase will tackle more complex returns. The IRS anticipates that the second phase will likely last through the end of the summer.

Important to note, any refunds issued will be subject to normal offset rules, meaning that they can be used to offset unpaid debts or payments including late federal or state income tax, state unemployment compensation debts, child support, spousal support, and other federal nontax debts such as student loans. Official notices will be sent to those people whose refunds are used to offset unpaid debts.

The refunds began going out the week of May 10, and will be sent out as a direct deposit if the recipient provided bank account information on their 2020 tax return. Otherwise, those anticipating a refund can expect to receive a paper check mailed to their address on file with the IRS.

Eli Fuhrman is a contributing writer for The National Interest. This article first appeared earlier this year.

Image: Reuters.