Kathleen Pender:
Many Californians may have to pay back their pandemic unemployment benefits.
Nearly a million Californians who received Pandemic Unemployment Assistance have been told they could have to repay some of their benefits if they can’t document the 2019 income they reported on their unemployment application. The repayment could amount to hundreds or thousands of dollars.
On Nov. 21, the California Employment Development Department began sending notices to certain PUA recipients giving them 21 days to submit proof of their reported income. If they can’t, the notice said EDD will reduce their weekly PUA benefit to as low as $ 167 and require them to repay the difference between their “current weekly benefit and the decreased benefit amount, for each week you were paid.” Those who got the notice Nov. 21 have until Friday to provide documents.
The notices went to PUA claimants “whose weekly benefit amount is greater than $ 167 AND those claimants whose selfreported income did not get substantiated through the EDD’s automated crossmatch process,” EDD spokeswoman Loree Levy said via email. “The original request to substantiate income went out to about 920,000 claimants. The EDD generates requests on daily basis” to people in this category.
Many will be able to prove their income, but some selfemployed people are realizing they may have overstated their 2019 net income while applying for benefits this spring, because they misunderstood the instructions or hadn’t yet finished their 2019 taxes, which were not due until July 15 because the coronavirus pandemic disrupted taxfiling season.
“This will explode. It’s going to be a massive problem,” said Michele Evermore, a policy analyst with the National Employment Law Project. “I know the people on Capitol Hill know about this.”
PUA is a federal program under the Cares Act that provides benefits to people who lost
work because of the coronavirus pandemic and can’t get regular state unemployment insurance. This includes the selfemployed, as well as former employees who ran out of state benefits or didn’t earn enough to get them. If anyone receives an amount they were not entitled to, federal law requires states to demand repayment, even if the “overpayment” resulted from an honest mistake.
The Oct. 1 version of the Housepassed Heroes Act would let states waive collection of overpayments that were made “without fault on the part of the individual” and repayment would impose a severe hardship. States can already waive repayment of regular state benefits for those reasons. Evermore said she hopes Congress will include a similar provision in the stimulus bill lawmakers are negotiating now.
In California, the EDD uses one application for both regular state benefits and PUA. It instructs former employees to report their gross income, which usually can be verified with payroll records. Selfemployed people were told to report their 2019 net income. The EDD determines whether people get regular unemployment or PUA based on payroll and other records. Regular unemployment “is calculated based on gross wages, and PUA is calculated based on net income,” the EDD said in an email.
California didn’t begin processing PUA payments until April 28, but it could make payments retroactively to whenever people lost work because of the pandemic, as early as Feb. 2. All PUA payments are set to expire Dec. 26.
Initially, the EDD sent everyone who qualified for PUA the minimum benefit of $ 167 a week. On May 20, it started to increase PUA payments automatically to anyone who reported 2019 net income of $ 17,369 or more, retroactively to the start of their claim. The more they earned, the higher the benefit, up to $ 450 a week for those who reported at least $ 46,696 in net income.
EDD stated on its website that selfemployed people who receive more than $ 167 a week would have to substantiate their income, but it did not require them to submit proof when they applied. “If the income information you provide indicates that you meet an annual earnings threshold of $ 17,368 or more, the EDD will work as quickly as possible to verify your income using other resources available to the Department in order to increase your PUA weekly benefit amount. If additional information is needed, the EDD will contact you,” the agency said.
Some people assumed when their benefits went up in late May and they hadn’t been contacted that the EDD had verified their income using other resources and determined they were eligible for the higher amount. That’s why many were stunned to get a notice on Nov. 21 demanding income documents. It says they must prove at least the amount they reported on the application ( up to $ 46,696) “to keep your increased amount.”
“This surprised me to get the email,” said Ken Maley, an outofwork media consultant. He said he doesn’t think he’ll be charged for an overpayment, but “it’s confusing as to what documents really will work.”
EDD says claimants may submit a 2019 federal or state tax return, but if they don’t have one, they may submit “state agency wage records, paycheck stubs, bank receipts, business records, ledgers, contracts, invoices, and billing statements,” Levy said. If selfemployed, 1099Misc forms alone are insufficient because they show “the gross payment made to you by the payer, not your net income after business expenses are deducted,” the EDD says.
If the EDD determines that a person’s net income was less than they reported on the application, it will reduce their benefit, but not below $ 167 a week, and seek repayment of the cumulative difference.
Cindy Danbom, an unemployed corporate event and wedding planner in Alameda, worries she might be asked to repay as much as $ 8,000, because she overestimated her income when she applied in late April, before she had done her taxes. “This creates a whole new level of panic,” she said. “And ( PUA) benefits are set to expire in two weeks. There’s going to be zero income and there’s no assistance because of all the deadlock in Congress.”
Idikó Santana, a freelance translator for 20 years in Placer County, is also bracing for a repayment demand. When she filed her tax return in October, the extended due date, her actual net income was about $ 15,000 less than she estimated when she filed for unemployment in late April. “I’m greatly disturbed and a little bit panicky,” Santana said. “I can’t sleep and I can’t eat.”
Most states never increased PUA payments above their minimum amounts, Evermore said. But people nationwide are getting “overpayment notices for all kinds of things.” One sports referee who lives in Indiana was forced to repay his PUA because the state said he should have filed for unemployment in Florida, where his last match was, she said.
“PUA overpayments are going to be a massive crisis if they don’t do something about this,” Evermore added. “The overpayment rate in regular unemployment insurance is 10%. You take a brand new system the states had to stand up basically overnight, staffed in many cases by brand new people, with fluctuating guidance” and the overpayment rate for PUA is bound to be higher.
It doesn’t help that EDD did not say on the application exactly what it meant by net income. In an FAQ, it says to report “net income, total after taxes.” As I pointed out in a May 23 column, that’s not a number on individual tax returns. In an email Wednesday, EDD said it will look at Line 31, net profit or loss, on Schedule C, which sole proprietors file with their Form 1040.
When Paul Simcock applied for unemployment, he hadn’t yet done his taxes. The Marin County photographer reported his gross income minus all of his expenses, except for some depreciation carried forward from a previous year, because it was a noncash deduction. He also deducted his actual auto expenses, but when his accountant did his taxes, he deducted a higher amount based on the IRS standard mileage rate. That difference resulted in a lower net income. Simcock said he thought he gave the right answer but worries the EDD “will probably ding me” for the difference.
Another problem: When ridehail drivers and other appbased workers applied for unemployment, most were awarded PUA because there were no wage records on file. Many such workers argue they are employees under state law and should be entitled to state unemployment benefits, which are often higher because they’re based on gross income, not net.
After a wage audit, EDD reclassified some drivers as employees and awarded them state benefits instead of PUA. But some drivers still getting PUA fear they could get a demand for repayment because they reported gross income on their application, said Nicole Moore, a member of an independent group called Rideshare Drivers United. “Our position is that no driver who’s facing overpayment on PUA should pay a penny back when they were supposed to be on ( state unemployment) under state law.”
In an email, EDD said, “If a rideshare driver is receiving PUA, it is possible that they will be contacted for this wage substantiation. If they reported gross wages instead of net income, which is an understandable mistake, it could lead to an overpayment if the driver has not sought a wage audit and has been receiving PUA.”
It added that anyone who can’t substantiate a PUA payment higher than $ 167 “through proof of 2019 net income ... will be assessed an overpayment.” Claimants “can pay back any overpayment amounts voluntarily and we will work with them on a repayment plan if needed.” For more information, see “How do I return unemployment benefits I shouldn’t have received” at bit. ly/ eddcoronavirus.
EDD said claimants will not be required to repay the extra $ 600 per week in federal benefits that were added to payments in April through July nor the extra $ 300 that followed for six additional weeks.