IRS compensation means people won't pay taxes on up to $10,200 worth of unemployment benefits

If you owed money on your taxes this year due to unemployment benefits or are expecting to pay out of pocket, a new announcement from the IRS may mean dollars coming back to you.

This year some folks had to pay hundreds or even thousands of dollars after filing their taxes due to unemployment.

"I would say there are still a lot of people who forget to have that federal tax taken out and they’re realizing it around tax time," said Larry Gentile.

RELATED: Some shocked to learn they owe hundreds or thousands in taxes from unemployment benefits

Gentile, a tax site manager with the United Way of King County, said a lot of people filed for unemployment this year, and a lot of them owe money because they did not withhold enough taxes from their benefits.

"There is anxiety. Everyone wants a refund, but the anxiety is a little higher when they realize they owe money," Gentile added.

However, there is some relief for these folks. The IRS announced that people will not have to pay taxes on unemployment benefits up to $10,200.

For people who have not filed yet, Gentile says tax software is modified for the change, but some folks have already paid out of pocket for what they owe.

"It said I owed $1,500," said Nick Baker.

Baker and his wife both work in the restaurant industry, but both of them lost work and hours due to the pandemic.

RELATED: Washington House OKs bill expanding tax credit for low-income families

Unemployment helped them get through the year, but when it was time to file their tax return, Baker said instead of getting a refund it said he and his wife owed a combined amount equaling nearly $1,600. 

Gentile said for folks like the Bakers they should expect the IRS to send them an additional refund which will equal the dollars they would have saved if they held off on filing their return. Gentile says there is no need to file an amended return.

"I know I keep using the word significant, but it’s true. Like, it’s where we’re at with how we’re handling bills and still catching up on our feet, our savings and everything else. It’s huge," said Baker.

The United Way of King County is providing free tax services aimed at helping lower-income families services are available both in-person and online. For more information click here. For more information on the IRS unemployment compensation click here.

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