Unemployed workers who did not receive big 2020 tax break may soon get it

OAKLAND, Calif. (KGO) -- Workers who missed out on a big tax break during the COVID-19 pandemic may get it, after all.

Californian members of Congress are asking the Internal Revenue Service to revive a tax break that expired before workers got their 2020 unemployment benefits, due to so many delays.

It could bring relief to thousands of California workers whose claims were stuck in the infamous backlog at the Employment Development Department.

RELATED: Taxes 2022: 7 On Your Side, experts answer viewer questions during Tax Chat

United Way can help you with filing taxes for 2022 for free, and even get a bigger refund. They have 70 help centers in the Bay Area.

VIDEO: CA EDD admits wrongly denying woman's pandemic benefits; now she has a big debt and large tax bill

Some unemployment recipients missed out on a big $10,200 tax break from the IRS because of how long the EDD took to deliver their delayed benefits.

Congress gave out generous unemployment benefits when the pandemic began. The first $10,200 of received benefits was even "tax free."

However, with all the problems at the EDD, tens of thousands of claims got stuck or lost or suspended. By the time many folks got their benefits, the tax break had expired! Now they have to pay the full taxes.

7 On Your Side pointed this out to California's members of Congress, and now they are taking action.

We told you about Nissa Bryant of Santa Rosa. "It feels like a punch to the gut, I feel forgotten," she told 7 On Your Side.

A full year after she was laid off in the pandemic, the EDD still had not paid her any benefits.

RELATED: Former SoCal EDD employee sentenced to more than 5 years in prison for $4.3 million fraud scheme

How did California handle its unemployment crisis compared to other states? The amount of unemployment funds stolen from California taxpayers in 2020 may total more than $8 billion -- four times higher than estimated just one month ago.

And Crystal Morris of Oakland: the EDD denied her benefits in 2020 -- then a year later admitted it was a mistake, and gave her all the back payments. "They were like, 'No you're not qualified.' And then they just basically hung up the phone," she explained.

By the time they got their money, Bryant and Morris each had gone into debt.

Not only that, they missed out on a big tax break.

VIDEO: CA EDD cuts benefits to new moms as it investigates massive disability fraud

Bringing a new baby into the world is a time of joy and stress. But as many brought their newborns home, they found the EDD had frozen their benefits.

Congress had waived taxes on the first $10,200 of unemployment benefits back in 2020.

But workers like Bryant and Morris didn't get paid till 2021, after the tax break expired.

Now they must pay full taxes.

Or will they?

RELATED: Nearly 1M self-employed suddenly required to prove they deserved EDD benefits or pay it all back

"I was excited to hear that there's actually movement on it now," said Morris.

This week, 22 Californian members of Congress wrote a letter to the IRS and Treasury Secretary Janet Yellen.

It says workers who had to wait until 2021 to get benefits from 2020 should still get that tax break.

"It's making things right. It's really important to make everything fair for everyone," Morris said.

VIDEO: EDD tells young woman to prove she's a real worker, then locks her out as deadline approaches

The Department of Labor has agreed not to make workers repay benefits they received by mistake, as long as they were not obtained by fraud.

The letter, written by North Bay Congressman Mike Thompson (D - St. Helena) reads:

"Congress clearly intended that $10,200 of benefits in 2020 should be tax-free.... delays at state agencies were plainly not the fault of the taxpayer... they should not be penalized for that error."

It's unclear how many Californians would benefit if the tax break is revived. EDD statistics show more than 300,000 claims were still backlogged at the end of 2020, and another 1.4 million were frozen for investigation.

"To push this through would definitely help a lot of people, especially this year," Morris agreed.

It's not clear if congressional action is needed, or if the IRS can just waive the tax now. But, keep in mind the tax break would not apply to 2021 EDD benefits - it would only be for those that were delayed from 2020. We are getting that question a lot at 7 On Your Side.

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

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