Man has to pay $3,000 in surprise taxes after EDD withholding mistake

ByRandall Yip KGO logo
Thursday, February 25, 2021
Man has to pay $3K in surprise taxes after EDD mistake
Even though they opted in to have taxes withheld, unemployed Californians are getting big tax bills because the EDD skipped withholdings in the interest of getting checks out faster.

BENICIA, Calif. (KGO) -- Some barely making ends meet during this pandemic will have a bigger tax burden than expected. And it's potentially happening to millions.

Leandrew Collins of Benicia works 10 hours a week for a school bus company. That's much less than the full-time job he used to have prior to the pandemic, so he qualifies for unemployment.

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He asked the EDD to take taxes out of his benefits each week.

But that didn't happen.

"That's just crazy because, you know, we think we did everything we were supposed to. We checked the box. We wanted them to go in. No one told us," Collins said.

What the EDD didn't tell him is that it decided not to withhold taxes from benefit checks, saying they needed to be implemented quickly.

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Collins estimates he'll have to pay at least $3,000 in taxes this year.

"I'm barely making payments on my rent and getting food. And now I'm coming up with a tax bill," he said.

Michael Grant says he's also cleaning up the mess left for him by the EDD.

He didn't return to his job at Macy's until July, after being out of work for five months.

"Just how much more pain is California going to inflict? You know, enough's enough," Grant said.

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Jim McHale is a CPA in San Francisco. He says those struggling to pay their taxes might be comforted with several thousand dollars in tax credits.

The average Earned Income Tax Credit is $2,500 and the Child Care Tax Credit is $2,000 per child up to three children for anyone family making $400,000 or less.

"So if you owed unemployment and getting the benefit of EITC or the additional Child Tax Credit because your situation changed, somehow those may offset," Raphael Tulino of the IRS said.

You can get a 15 percent deduction under the Earned Income Tax Credit.

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Someone with no children could earn up to $21,370 and a married couple with three children could earn up to $55,952 and still qualify. Unemployment benefits don't count as earned income.

"But a special law allows them to go back and use their 2019 income to apply to the earned income tax credit," said McHale.

You can use whichever year will get you the higher credit.

Unfortunately, all of this doesn't take the sting out of the tax bill for Leandrew Collins, who's waiting for an explanation from EDD.

"The decisions that they make truly affects people. And when we're struggling to have an extra tax bill is crazy," he said.

Here's a bit of good news for some of you. If all the tax credits drop your taxes owed to zero, unused money from the Child Tax Credit will come to you in the form of a refund check.

Take a look at more stories and videos by Michael Finney and 7 On Your Side.

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