California unemployment: Thousands of fraud victims get income tax bill for jobless benefits paid to scammers

ByMichael Finney and Renee Koury KGO logo
Saturday, February 6, 2021
Fraud victims get income tax bill for benefits paid to scammers
Billions of dollars have been lost in unemployment benefit fraud. Now, those whose identities were stolen are victimized again as the IRS sends tax bills for money they're never seen.

COMPTON, Calif. (KGO) -- We've heard the astronomical numbers: as much as $30 billion in fraudulent unemployment benefits paid by the EDD. Now in the latest twist, millions of Californians who never got benefits are getting hit with a tax bill -- to pay taxes on benefits the scammers got.

We're already hearing from folks across the state -- someone stole their identity to file a claim. Now they are getting a 1099 from the EDD, saying, "You have to pay income taxes on the money the scammer got."

RELATED: CA EDD admits paying as much as $31 billion in unemployment funds to criminals

"They think I have been the one getting the money since March," said Renee Hollins of Compton. She was laid off from her accounting job in August. But when she filed for unemployment, she found out somebody else had already claimed her benefits -- back in March.

"I did not file in March, okay. I was still working in March," said Hollins.

Still, the EDD told Hollins she was already collecting benefits -- even told her why she supposedly was out of work.

"'The claim form you put online says you're an actress.' I said, 'Excuse me? I've never been an actress. Never,'" she said.

Instead, it was an imposter using her name and Social Security number, claiming to be an unemployed actress, to file a phony claim with the EDD.

VIDEO: Social Security refuses to refund Bay Area man $15,000 accidental overpayment

A mistyped decimal point led to a man overpaying his Medicare B coverage by over 900%. Social Security said they couldn't issue a refund, only a credit.

Hollins filed a fraud report right away with EDD.

She says no one responded. EDD simply denied her any benefits.

"It says, 'No benefits available for your claim at this time.' That's 'cause the fraudster had already... got the benefits!" she said.

And now, making things even worse -- Hollins just got a tax bill for those fraudulent benefits.

A 1099 from the EDD says she must pay income taxes on $25,500 the EDD paid out to the scammer -- in Hollins's name.

RELATED: EDD failed to implement anti-fraud measures until it was too late, says state auditor

"I have to report this as my taxes. And I didn't get this money!" said Hollins.

It's left her bewildered, broke, and now on the hook to pay thousands of dollars in taxes on benefits she didn't get.

"But to call EDD, I have all these numbers and I can't get one, not one!" she said.

And it isn't just Hollins. A state auditor's report says EDD may have paid more than a half million fraudulent claims using stolen identities. The report said that number could rise as folks don't yet realize their identities were stolen but will find out when they get the 1099G forms from the EDD.

WATCH: DA explains how inmates at San Mateo County jail, including convicted murderers, got $250K in EDD benefits

While a million workers still can't get unemployment benefits, EDD paid out a quarter million dollars to jail inmates running a scheme behind bars.

The auditor also said the EDD investigated fewer than 2 percent of the fraud reports submitted to the agency last year -- like Renee's. Those investigations might have stopped payments to scammers.

"I have received countless calls from people in the district who are scared to death,'' state Assemblymember Jim Patterson (R-Fresno) said at a hearing in Sacramento questioning EDD officials about the auditor's findings. "You're gonna be flooded with Californians who are gonna see what their taxes are gonna look like."

"Unfortunately these very unscrupulous scammers were waiting to pounce on unemployment insurance programs across the country in ways we've never seen before," EDD spokesperson Loree Levy said during a question and answer period on ABC7.

The EDD said victims should contact EDD to request a corrected 1099G, the form government agencies send out. They must be reported on a taxpayer's federal tax returns, but jobless benefits are not taxed by the state.

RELATED: Bank of America addresses freezing accounts, fraud in state assembly hearing

The EDD has set up a phone line (1-866-401-2849) and online form to take requests.

Hollins still waits for results.

"It makes me feel bad. I feel bad every day. My blood pressure is about 180-something. I check it every day. I'm trying to stay cool because if I die, what?" she said.

The EDD has one designated phone line you can use to request a corrected 1099: 1-866-401-2849. Or, you can fill out an online form here. Taxpayers will have to verify their identity with EDD, which will have to determine they were not the ones who received the benefits listed on the tax form.

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

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