Congressman Doug LaMalfa (R-Richvale) issued the following statement after sending a letter to Republican and Democratic House and Senate leaders highlighting the urgent need for bipartisan Congressional action to ease the burden of unexpected tax liabilities for recipients of unemployment benefits.
According to a statement from LaMalfa, millions of Americans will receive unexpected tax liabilities due to the classification of unemployment insurance payments as income. Many of the nearly 44 million Americans filing for unemployment last year were unaware that UI benefits were considered taxable income, and many state agencies, including the California Employment Development Department, were inconsistent in withholding projected federal income taxes of both the state base benefit and federal supplemental benefit paid through COVID relief legislation. Further, millions of Americans are victims of UI fraud, a fact many discover only upon receive a 1099-G form for benefits they did not apply for or receive.
“No American who lost his or her job because of COVID should suffer the additional unexpected burden of having their unemployment benefits taxed,” LaMalfa said. “I’ve offered two commonsense solutions to this problem that will bolster bipartisan Congressional intent to aid those suffering after losing their employment, as well as strengthened measures to combat the fraud being perpetrated on far too many Americans. I call on Congress to incorporate a fix for these issues in any additional COVID relief legislation being considered, and I look forward to continuing to work with my Republican and Democrat colleagues towards a solution.”
LaMalfa proposes two separate policy fixes to solve the issue of unexpected tax liabilities. First, Congress could direct the IRS to proactively waive any future failure-to-pay penalties or interest on outstanding tax debts in 2020 on income levied from UI benefits.
Second, Congress could create a new refundable tax credit equal to the value of an individual’s tax liability from UI benefits collected in 2020.
LaMalfa also calls on Congress to codify and provide resources to the Department of Justice National Unemployment Insurance Fraud Task Force created last year by the Trump Administration to combat rampant UI fraud. In early November 2020, the Office of the Inspector General of the Department of Labor “conservatively” estimated that $36 billion of the $360 billion in CARES Act funds to supplement unemployment could have been paid improperly or fraudulently.