Senate fixes tax issue LaMalfa highlighted

Congressman Doug LaMalfa issued the following statement after the Senate included a one-time provision in its version of the American Rescue Plan to make the first $10,200 of Unemployment Insurance benefits in 2020 tax free.

LaMalfa raised the issue in a letter to his House and Senate colleagues and did offer an amendment during House debate on this bill that would have excluded UI compensation from gross taxable income for 2020.

Thousands of Californian’s will face large unplanned tax burdens because California’s Employment Development Department incorrectly calculated tax withholdings, or simply ignored withholding requests. President Biden has nominated Julie Su to be Deputy Secretary of Labor. Su was the Secretary of California Labor and Workforce Development Agency.

“By forgiving federal income tax on UI benefits in 2020, Americans who suffered the most – with the loss of their job – will be given extra assistance consistent with lawmakers’ original intent. In addition, those who have suffered identity theft and unemployment fraud will have buffer time for state workforce agencies and the IRS to fix the mistakes made. It is unacceptable that EDD’s inability to withhold taxes properly would lead to a Californian being penalized and owing a lump sum in April. The Senate made the right move to add this direct, targeted, COVID-related aid.”

LaMalfa has sounded the alarm for weeks that an avalanche of problems would arise this tax season regarding the taxation of UI benefits. As the COVID-19 pandemic decimated the American economy and left millions of people jobless, many were unaware that UI benefits were considered taxable income. Additionally, state workforce agencies, such as California’s EDD, were inconsistent in withholding federal income taxes, causing thousands of Californians to owe a lump sum of taxes. Lastly, international identity theft and unemployment fraud schemes have resulted in an estimated $36 billion in fraudulent payments, including sending unemployment funds to California’s Death Row inmates. Recently, Americans have been receiving 1099-G tax forms claiming they owe income taxes on UI benefits received in 2020, although they did not receive these benefits.