SAN FRANCISCO (KPIX) - For months KPIX has been reporting on the frustrations and devastating economic impacts of fraud involving unemployment debit cards. About 11 million Californians get their unemployment benefits on Bank of America debit cards. They've lost thousands of dollars in fraudulent transactions. Now we're learning they could get hit with taxes on income they never received.
"I was really excited," said Scott Wheeler.
At first Wheeler thought the letter from the Employment Development Department was finally the money he's been waiting almost a year for. But not so. It was a 1099-G tax form from EDD.
"They said that they had paid out $14,000. And I obviously didn't see any of that. So somebody has it, but I don't have it," said Wheeler.
He was out of work for three months at the beginning of the pandemic and applied for benefits. But he never received them and gave up trying.
"They hadn't been in touch with me for any of the good news. But they are going to deliver the bad news to me. I mean that just does not seem right on so many levels," said Wheeler.
He's not the only one.
Lisa Leen got a tax form from EDD that says she earned $12,000.
"I have only gotten about $800," said Leen.
She says fraudsters got the rest and no one can help her.
"It's been up to about like 60 hours just on the phones trying to call," said Leen.
Then there's Mathieu Cabart. He told us fraudsters stole $3,000 in three separate ATM transactions from his account in October.
"To this day, I still haven't seen that money back on my account," said Cabart.
But his tax notice still includes that as income.
Andrew Gruber was also the victim of a hack. Then his account was frozen.
"I have $6,110 dollars that are locked on my debit card," said Gruber.
Turns out he already paid taxes for $3,000 dollars that was stolen from him.
"Because every two weeks when I certified for benefits, I would have federal tax withheld in order not to pay it," said Gruber.
EDD's website has a video about the 1099-G form that doesn't address any fraud issues.
A printable guide advises potential victims of fraud to email or call, something fraud victims told us was laughable.
"I don't think I am going to get much of an answer from EDD," said Lisa Leen.
"It's just an endless circle of nothing happening so nothing is going to get resolved," said Ty Fug.
"I've watched your pieces and I was quite frankly, shocked and appalled that this is actually going on," said Professor Caroline Chen, who teaches accounting at the Lucas College and Graduate School of Business at San Jose State University. "My heart really goes out to all of the victims that you've been speaking to because it's not over yet."
Professor Chen says victims of debit card hacks should report to the Internal Revenue Service only what they actually received, and not what the EDD says they received. But then get ready for a letter from the IRS saying you reported your income incorrectly.
"It's like a big matching system. So you match and you match and you match and you match the taxpayers on one side and the IRS information then on the other side. So did you make $10,000 from your work as an employee? Yes, you did. Ah, there's a match. Did you receive $5,000 in unemployment benefits? You didn't, but the IRS thinks you did. Now you don't have a match anymore," said Chen, who worked for the IRS for a decade before embarking on her teaching career.
Chen says if you get that IRS letter, called a CP 2000, don't panic. You technically have three years to sort it out. But be prepared to be patient. Just like everything else in the pandemic, the IRS is backlogged.
"It's going to be like calling the EDD where you are potentially going to be on hold for hours at a time and then be transferred and hung up on," said Chen.
Unfortunately Professor Chen says there is some bad news for people whose accounts were frozen. They will have to pay the full amount of taxes on the money sitting inside even though they weren't able to touch it.
She recommends using fax as the preferred way to get your correspondence to the IRS. A lot of faxes now are electronic and, if so, the letter will go straight into someone's inbox.
She also suggested Tax-Aid, a non-profit organization that provides free tax preparation services to taxpayers with $57,000 of income or less.
Other organizations that provide free tax preparation services in the Bay Area:
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