Senate Republicans Urge Immediate Action to Protect Unemployed Californians from a Looming Tax Tsunami

SACRAMENTO – California Senate Republicans are concerned about the looming tax tsunami facing unsuspecting and unemployed Californians stemming from mismanagement and fraud in the state’s Unemployment Insurance program. Today, Senate Republicans delivered a letter to Governor Newsom urging him to take immediate action to help those innocent victims.

This week, Californians will begin receiving 1099-G tax forms summarizing their taxable earnings from unemployment benefits. Not only will the tax bill come as a shock to recipients, there is a distinct possibility many victims of fraud will be left on the hook for taxes on money never received. The Employment Development Department (EDD) has struggled to do even the slightest thing right during the pandemic and to think this agency could straighten this out on its own prior to tax day is unfathomable.  

By the end of 2020, EDD had paid out $10.4 billion in benefits to claimants whose identities were unverified and that figure could climb as high as $30 billion. This resulted in frozen bank accounts, stalled benefit payments and a variety of other problems each of our offices has been tirelessly working to help these individuals with over the last ten months. The Auditor’s report last week underscored Californians’ worst nightmare by pointing out the potential problems with regard to tax liability. Without immediate action by the Governor and our federal representatives, innocent people will be left to fight the IRS over tax liabilities for benefits they never received.

Senate Republicans share the auditor’s concerns, and want to ensure the Newsom Administration is taking every action possible to enact the auditor’s recommendation to promptly assist victims of identity theft and help them avoid tax liabilities for unreceived benefits. April 15 is just a few months away and Republicans are rightfully concerned the agency will be unable to effectively address this new challenge.

An excerpt of the letter is below. Click here to read the full letter.

… As we enter the tax filing season, many Californians will be surprised to learn that they have tax liabilities for UI benefits that were fraudulently claimed in their name. This is because 1099-G forms will soon be arriving in the mailboxes of taxpayers who were victims of identity fraud. Even more concerning is that there will be victims of identity fraud who will have no idea why they even received one of these forms until after they file taxes. This is because EDD is generally going to mail the 1099-G to the most recent addresses of record, which are the ones the bad actors used to obtain UI benefits.

The State Auditor shares our concern for the tax liabilities for victims of this identity theft and recommends that EDD should prepare to assist victims of identity theft to ensure that they receive prompt assistance and avoid tax liabilities for benefits they never received. Specifically, the auditor recommends that EDD must prepare to respond to victims of identity theft who receive incorrect tax forms, and should, by mid-February 2021, provide information on its website and set up a separate email box for such individuals to contact EDD and receive prompt resolution. We wholeheartedly agree with this recommendation, but remain skeptical about the agency’s ability to do it effectively, if at all. Our offices are currently hearing from the same amount of constituents as we did last spring, who are seeking help from EDD because of problems with identity verification, backlogged claims, and frozen accounts. …

Last week, Senate Republicans requested legislative leadership for an immediate oversight hearing to discuss ways to implement the State Auditor’s recommendations. An oversight hearing is scheduled on Wednesday, February 3 with the Joint Legislative Audit Committee (JLAC) and the Assembly Insurance Committee. Media can read the letter requesting for an oversight hearing here.

Timeline of Senate Republican EDD Actions:

  • April 2020: Senate Republicans wrote a letter warning Governor Newsom about the failures of the EDD after hundreds of thousands of jobless Californians reached out to legislative offices seeking help with their unemployment claims.
  • June 2020: Republicans asked for an independent audit of the EDD through the Joint Legislative Audit Committee (JLAC). Democratic members of JLAC canceled a crucial hearing in August, which would have been an opportunity to review the EDD audit request. (Signed by Republican members from both the Assembly and Senate, the letter to JLAC was a bicameral effort to demand answers from EDD.)
  • July 2020: Members of the Senate Republican Caucus requested that Governor Newsom staff EDD 24/7 to help clear the backlog.
  • August 2020: Senate Republicans joined a coalition of legislators delivering another letter to the Governor demanding that he take action to improve EDD operations.
  • September 2020: Members of JLAC approved an audit of the EDD that Senate Republicans joined in requesting.
  • November 2020: District Attorneys announced a major unemployment fraud scheme operating in and around California’s prisons. In a letter to Governor Newsom, Leader Grove requested adequate support for DA’s across the state so they can investigate and prosecute the high number of EDD fraud cases.
  • December 2020: Senator Grove introduced SB 39 to mandate crosschecking of prisoner information with unemployment claims and Senator Wilk introduced SB 58 to require EDD to stop including full social security numbers on their mail, which have put tens of millions of citizens at risk or identity theft.
  • January 2021: Senate Republicans led an effort to call for an immediate oversight hearing on the EDD following a scathing State Auditor report.
  • February 2021: Senate Republicans warned governor about victims of identity theft and urged him to promptly help them so that they can avoid tax liabilities for unreceived benefits.