Direct deposit refunds began rolling out on July 14 to millions of taxpayers who overpaid taxes on their 2020 unemployment compensation. Paper check refunds are also being mailed out. Generally, unemployment compensation is taxable income. In response to COVID-19, the American Rescue Plan Act allows taxpayers to exclude up to $10,200 in 2020 unemployment compensation, or $20,400 for couples filing married jointly (subject to income limits). Taxpayers who filed their 2020 tax returns before the new law was passed may have overpaid their federal taxes. The IRS has advised taxpayers that no action is needed. The IRS will automatically adjust their returns and refund overpayments.