Hi everyone, this is Dr. Nitin Chhoda! In this training video I'm going to
teach you "How to avoid a huge tax bill. How to avoid interest. How to avoid
penalties with your unemployment benefits. I'm going to cover three things in this
training video. The first is that your unemployment benefits including the $600
week federal booster (which at the time I'm recording this video training is
going to be available until the 31st of July) it's actually considered ordinary
income. Number 2, I'll talk about what is ordinary income and number 3, I'll
give you three ways to offset a huge tax bill with penalties and interest
associated with this unemployment income. Now before I get started let me say I
understand the situation that all of my subscribers are going through out there
if you're receiving unemployment right now and if you don't have a job whether
you pay taxes or not next year what is ordinary income what is state tax income
what you need to pay that may not be at the top of your priority list right now
in fact you might just be saying you know what I don't really care about
withholding and all of the other things because right now my goal is to put food
on the table my goal is to pay rent my goal is to make sure my lights don't go
on I get that I recognize that I empathize
with that but a lot of subscribers have asked for this training video and also
I'm trying to help all of us not only survive the present but also plan for
the future now for my subscribers who are unemployed or who lost their job and
who are now waiting for an employment you need to be aware that your
unemployment income including the $600 federal booster is considered ordinary
income even if you see a significant drop in your total income because your
wages your salary is gone you could see a tax bill next year because your
unemployment benefits are considered ordinary income now the fact is a lot of
individuals on unemployment don't even know or don't even realize that the
income is considered as ordinary income which is why I wanted to create the
create this training video and give you some clarity about this situation now
what is ordinary income ordinary income refers to many different types of income
that is taxed at the regular US tax brackets this includes wages salaries
tips and commissions now this does include long term capital gains and
qualifying dividends both of which have a more favorable tax
treatment now your unemployment benefits are taxed by the federal government as
ordinary income now as all of you probably know when you get your paycheck
you're paying federal income tax you're paying state income tax you're paying
Social Security and Medicare tax when you get unemployment benefits the
federal government will get their taxes back when you file your taxes in the
following year so once again the unemployment benefits including the $600
federal booster are subject to federal income tax now the good news is they are
not subject to Social Security and Medicare tax and when it comes to state
income tax it really depends on your state so again your unemployment
benefits are considered taxable income by the federal government just like
wages and state taxes may or may not be applicable I've done another video
training where I talked about state income taxes so definitely check that
out on my channel where I talk about the differences between different states
where as far as state income taxes are concerned a lot of states have a
shortfall in their own budget and they're charging state income taxes for
example California and New York are charging state income taxes even for
remote workers in other words workers who don't live
there but who are passing through to work let's say they had to move to a
different location or stay with a relative during the pandemic on the
other hand states like Texas and Florida have no state income tax to begin with
so a portion of the unemployment benefits that you're getting now will
essentially find its way back to the federal government when you file your
taxes next year that's just that's just the way things are so the way this works
is let me give you a scenario and highlight the differences between the
two scenarios so it's a little bit easier to understand let's say you were
living in a normal world in a normal situation you were working on-site you
were working from your place of work you were working from your office and in
that situation let's say you made thirty thousand dollars a year you would pay
federal income tax you would pay state income tax you would pay Social Security
and you would pay Medicare taxes but now in this in with the unemployment benefit
situation let's say you get the same 30 thousand dollars a year let's just
assume that for the sake of argument so we can compare
with the same numbers in that case you would pay federal income tax on the
thirty thousand dollars you'd be required to pay that tax when you file
your tax returns next year you will not pay Social Security and Medicare taxes
but you may be required to pay state income taxes it really depends on your
state because every state has different guidelines depending on whether you live
in the state or whether you work in the state depending on whether that state is
your state of domicile in other words where you live your primary residence or
if it's your state of work in other words you relocated for whatever reason
to work in that state now here's the problem with this situation that I want
all my subscribers to understand let's say you're getting thirty thousand
dollars in unemployment benefits this year and there's no withholding in other
words you get all the money and you don't pay any federal income tax the
problem is if you don't pay a sufficient amount of federal income tax then by the
time you get to the next tax filing deadline which is presumably April 15
2021 and now you owe back taxes for 2020 and remember you unemployment benefits
will be subject to federal income taxes if you haven't paid enough taxes you
could not only have a huge tax bill come April 15 2021 but you could also be
subjected to penalties and interest on the unpaid amount now I'll give you
three options to avoid a huge tax bill when it comes to your unemployment
benefits the first is to have taxes withheld now when you're filing for
unemployment benefits from your state agency and again every state has its own
specific rules ask to have 10% of your unemployment benefits withheld for
federal income taxes now this will cover federal income taxes and if you have the
ability to do so at the outset when you apply for state unemployment benefits
that's something you should consider doing now if you're already receiving
benefits and you want to make an adjustment you will fill out the IRS
Form w-4 V which is a voluntary withholding request and what this will
do is this will adjust your withholding you may also make changes to this every
two weeks as and when you want to adjust your withholding so let's say your
recertifying your unemployment claim every two weeks now remember you have to
follow the exact guidelines the exact protocol from your state
unemployment agency so make sure you look to them for guidance I'll include a
link in the description below that allows you to get in touch with your
state unemployment agency and ask them for specific advice reach out to the
correct person so that you can adjust your whittling as needed so that you
don't have a huge backlog of federal income taxes and you don't have a huge
taxable when you file your income taxes next year the best website for this is
the career one-stop website from the US Department of Labor that can now link
you to all of the individual state and employment agencies and I'm sure a lot
of my subscribers know this already the second option if you want to avoid a
huge tax bill at this time next year is to file quarterly taxes now this is more
applicable to individuals who are self-employed so if you are a wage
earner if you are on a salary this may not be applicable to you but if you are
self-employed you have the option to pay quarterly taxes now and you should pay
some amount of quarterly taxes so you avoid a huge tax bill you avoid interest
you avoid penalties come tax time next year now the third way to offset a huge
tax bill potentially penalties and interest next year when you're filing
your 2020 tax returns on or before April 15 2021 is to try and save 10% of your
unemployment benefits towards federal taxes put that money in a savings
account hold on to that money because cash is so important right now we live
in a climate where a lot of us are struggling when a lot of us find it hard
to pay for it to pay rent to pay for food to pay our utilities so cash is
very important right now this would be my preferred option
you save you set aside money because when the tax bill comes due next year
and it will come to you next year there's no way to avoid these taxes you
have to pay the taxes so when the tax bill comes you next year you should have
some money set aside now the reason I prefer this option is it gives you a
little bit more flexibility it gives you a bit more of a cushion a buffer if you
will because you'd rather have the money in a savings account and then use it for
something that's necessary as opposed to not have it when it comes time to pay
taxes because then again like I mentioned you could be subjected to do
interest could be subjected to penalties and you
want to avoid that under any circumstances I know this is a tough
time for all of us and I know that a lot of us really count on these unemployment
benefits and need them to be able to pay our bills and a lot of us are in a very
dire situation I'm trying to prepare you for what lies ahead and even though like
I mentioned at the start of this training video even though the
withholding and even though the setting aside money for taxes may not be a high
priority right now even though the higher priority is to keep the lights on
the higher priority is to buy food I completely understand that I'm just
trying to give you information so that you can be prepared for the future as
well because one day we will get through this and one day all of this will be
behind us I'm with you I support you all and I appreciate you for watching this
video if you are an existing subscriber thank you so much if you're not a
subscriber yet please consider subscribing
I'll give you important updates that will help you get through this situation
so that you know your options you know what lies ahead and you're financially
prepared for a better future thank you so much for watching please click the
like button because it really helped so the YouTube algorithm I'm with you and
I'll see you in the next training video thank you