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

The Oakland woman didn't get the $10,200 tax exemption on unemployment benefits because she wasn't paid until 2021.

ByRenee Koury KGO logo
Sunday, February 27, 2022
EDD delays in delivering benefits cost unemployed huge tax break
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.

OAKLAND, Calif. (KGO) -- 7 On Your Side has reported about the Employment Development Department's struggles to deliver unemployment benefits during the COVID-19 pandemic. As millions of claims poured in, the EDD was instantly overwhelmed, and many didn't receive benefits until 2021.

TAX CHAT: Have a question about filing your tax returns? 7 On Your Side wants to help

Not only was that a hardship, but many are now finding out they missed out on a big tax break, too. .

The impact of the EDD's infamous backlog seems never to end. In the confusion of the pandemic, the EDD told Oakland resident Crystal Morris she didn't qualify for benefits.

Then, nearly a year and a half later, the EDD realized they made a mistake. Morris did qualify after all. It was great news until she found out it was taxed.

Morris didn't know if she felt happy or mad.

VIDEO: 7 On Your Side investigates calamity at California EDD

We are looking at California's EDD issues in "Broke: California's Unemployment Crisis."

"It was just such a shock," she said.

She was both.

"You couldn't believe that all the suffering you went through over 14 months, that all of a sudden, 'Hey by the way we were supposed to give you money to assist you...'" she said.

Morris was unemployed when the pandemic hit. The EDD said she'd already used up her benefits and didn't qualify for more.

VIDEO: EDD admits to waiting on man's unemployment claim so long, it was rejected

The EDD's response to the man whose claim was rejected and sent to appeals: "We unfortunately did not respond on time."

"There was a lot of confusion at that time," Morris said.

No one told her about the pandemic benefits Congress had just approved.

"They were like, 'No, you're not qualified,'" Morris said. "And then they just basically hung up the phone and that was the end of their part in my life."

Morris struggled through the first year of the pandemic with no income.

"Well, there's nothing that I can do except use up all my savings, use up all my stimulus to survive, use a credit card," she explained.

Then, nearly a year and a half later, the EDD said there was a mistake. She should have been getting pandemic benefits all along.

Now Streaming 24/7 Click Here

If you're on the ABC7 News app, click here to watch live

The EDD gave her all the payments she missed in 2020, more than $11,000.

"It was like, it was such a blessing," she said. "But then also at the same time, it was so like, why did this happen?"

Morris said she really could have used that money during the lockdown when she fell deep into debt.

"I pretty much maxed out my credit card," she said. "Yeah. That was pretty hard. Then to find out that, you wouldn't have had to have done that if unemployment had done what they were supposed to do. That was very painful. It was just really painful."

On top of that, Morris found out she doesn't get the big tax break others got: a $10,200 tax exemption on unemployment benefits paid in 2020.

RELATED: EDD offices have been closed to the public for over 25 years; here's why

Morris wasn't paid until 2021.

The tax break had expired. She now has to pay full taxes.

IRS enrolled agent Norman Golden, past president of the California Society of Enrolled Agents, says taxes are based on income when it's received -- not when it should have been received.

"If they did not receive the benefit until 2021, they're out of luck," he said. "I'm sure it's going to be in the high tens of thousands, if not hundreds of thousands of people that are affected."

Given the large backlog at EDD, Golden says many others likely missed out on the tax break, too.

EDD statistics show about 310,000 claims were still awaiting approval on the last day of 2020. At the same time, the EDD froze 1.4 million claims to investigate fraud, delaying payments just as the tax break expired.

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

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 EDD did not address the delays, nor what happened to Morris, but told 7 On Your Side: "... The on and off again nature of the different federal laws continuing the pandemic extensions of regular benefits did lead to some starts and stops... and definitely made things confusing for claimants."

"That was just really painful to realize you could have been helped long ago," said Morris.

7 On Your Side reached out to members of Congress. Some are looking into whether that tax break should be extended to 2021. For now, anyone who got unemployment benefits last year, whether they were delayed or not, will pay full taxes on those benefits.

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

Have a question for Michael and the 7 On Your Side team? Fill out the form HERE! 7OYS's consumer hotline is a free consumer mediation service for those in the San Francisco Bay Area. We assist individuals with consumer-related issues; we cannot assist on cases between businesses, or cases involving family law, criminal matters, landlord/tenant disputes, labor issues, or medical issues. Please review our FAQ here. As a part of our process in assisting you, it is necessary that we contact the company / agency you are writing about. If you do not wish us to contact them, please let us know right away, as it will affect our ability to work on your case. Due to the high volume of emails we receive, please allow 3-5 business days for a response.