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“40% of Americans don’t know that unemployment benefits are taxable for federal purposes” : Dan Geltrude, Geltrude & Company'

Dan Geltrude, Geltrude & Company CPA Founder joins the Yahoo Finance Live panel to discuss what to look for when filing taxes and how millions of Americans who have been receiving much needed unemployment benefits may end up with a tax bill.

Video Transcript

- Welcome back to Yahoo Finance Live. In today's Tax Time segment, we want to spotlight some concerns that Americans should be aware of as they prepare to file in this year's tax season. For more on that, let's bring on our next guest. Dan Geltrude is Geltrude & Company CPA founder. And Dan, when we look at it, you know, the main question and main surprise that might be there is tied to unemployment benefits that a bunch of Americans may have received this year and last year. So talk to me about what they should know.

DAN GELTRUDE: Sure. So there have been millions of Americans that have collected unemployment benefits this year due to the pandemic. And the people were collecting unemployment didn't have a job. So they were in financial straits. But here here's where the surprise comes in.

There was a Jackson Hewitt survey that said 40% of Americans don't know that unemployment benefits are taxable for federal purposes, which means people are getting those checks. And they're saying, great, I need this money. And they spend the money because that's what it's there for.

But now the problem comes in when it's time to file your tax return, you realize, wait a minute. I didn't know that those unemployment benefits were taxable. I didn't put any money aside. And there was no withholding from those benefits.

So now you really have the perfect storm brewing where you have people that are short on income, short on savings, follow their tax-- file their tax returns. And now they have a tax liability that they can't afford to pay. So this is problematic for a lot of people.

- Well, I mean, no question. It is a problem. And yet, we're-- we're at this point right now where there's going to be a lot of people who realize that it's a little too late when you're so close to tax day. What do you-- what do you advise? I mean, is there any relief and extension that they can apply for?

DAN GELTRUDE: Well, you could file for an extension. However, the taxes are still due by April 15. So it doesn't really solve the problem. So right now, people have to focus in on wait a minute. There is a tax liability potentially coming. Or you could have a situation where they're relying on a refund. And that refund isn't going to be as large as-- as they anticipated. So it really depends on the individual circumstances.

So I would say for the people that are listening to this right now, start thinking about I could have a liability here unexpectedly to this point. Let me start to put some money aside. And let me also bring up this point. We're focused in on the federal side of this. There is also potentially a state tax related to the unemployment benefits that you receive.

Now, not every state taxes unemployment benefits. There are some that's specifically excluded-- California, New Jersey, Oregon, Pennsylvania, Virginia. And then of course, there are states that have no income tax at all. So that's great. But you may very well be in a state where not only is your unemployment benefits going to be taxed by the IRS, you're also going to have a state tax liability.

- Yeah. So viewers watching this in those states you just talked about at least breathing a sigh of relief there. But for everybody else, obviously that's going to be an issue that they're going to be waiting for, perhaps why we've seen Americans maybe smartly stashing away some of those stimulus check payments earlier might going to want to do that if you get a second one here. But when you look at some of the other stuff in this package, you were talking about the minimum wage in the commercial break with us. What are some of the questions that people should be bracing for if that is indeed to come through eventually, the tax implications there?

DAN GELTRUDE: Well, before I get to the minimum wage, just one other point. I think some of the misconception related to the taxability on unemployment related to stimulus checks because if you got up to that $1,200 in-- in the first round there, that was not taxable. So people made the assumption unemployment wouldn't be there. So I just want to put that out there.

Now, as it relates to the issue of an increase of minimum wage up to $15 an hour-- so on the surface that may seem like a great thing, people making more money. And it'll be helpful. But if you look specifically on the small business side, when you have the federal government or state government that says, look, you have to pay this much a minimum wage, that's basically a tax on that business because you are being told you must pay this. That's money that's not staying inside of a business.

On top of that, when you have an increase in wages, well, you know what? Payroll taxes are attached to that. So therefore, these businesses are going to have a situation where they're paying more for labor, and they're going to have an increase in payroll taxes.

So many small businesses out there very concerned about this because it's been tight. It's been a struggle. Businesses are looking to survive. If this goes through, they get hit with it twice-- the increase in the wage and the increase in the corresponding payroll taxes.

- Important reminders for us all to be aware of here in this Tax Time segment. I appreciate you coming on here to chat with us Geltrude & Company's Dan Geltrude. Thanks again.