Unemployment tax shocks hit claimants; employers next unless fixes pass at Capitol

Always Investigating

HONOLULU (KHON2) — Some recipients of unemployment payments are facing sticker shock as they realize they now owe taxes on that money, and in some cases, they owe money back to the State. That is just one issue KHON2 has heard about as the unemployment woes continue for employees and employers nearly a year after the pandemic hit the economy hard.

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Always Investigating found out some solutions are in reach but whether they can be put in place to make a difference for the thousands of people out of work — and the employers struggling to stay afloat — remains to be seen.

It is nearing a year since COVID-19 caused the biggest unemployment shock in Hawaii’s history, and tens of thousands still filed new claims in January, 2021, triple the pre-pandemic number. That is on top of tens of thousands more who have yet to get back to work since last spring.

“My colleagues and I were laid off in April of last year, and we’re in the tourism sector,” said Peter Yee. “I think that the tourist count would have to rebound to the 70% level before I see my job back.”

Yee has been a volunteer moderator with the Hawaii Unemployment Updates & Support Group on Facebook — 25,000 strong — helping each other while the Department of Labor and Industrial Relations (DLIR) struggled through hundreds of thousands of claims in 2020 — some of which are still being adjudicated.

A hot topic on the forum these days: tax forms are coming out on 1099s.

“We took a poll of members and one-third say their 1099 is incorrect, so and they don’t know what to do,” Yee said. “Speaking of PUA (Pandemic Unemployment Assistance), we had a lot of people that were in that boomerang getting shuffled between regular unemployment and PUA. When they were sent back to regular unemployment, DLIR said you will you owe us this many thousands of dollars back, but they get a 1099 on that.”

“Right now, we have not requested payments for the PUA side, no bills have gone out for overpayments,” explained DLIR Director Anne Perreira-Eustaquio. “They do know there’s an overpayment because they can see it on their account. We issued the payments, they received the payments, those are accurate 1099s. They have to report that and that income until it is paid back, and then you would remedy that on your tax return in the next year.”

As for taxes on folks with regular unemployment and correct PUA payments:

“I think a lot of claimants did not really realize how much they were being paid through this pandemic,” Eustaquio said. “When you see the net result at the end, like, wow, I got $30,000, $40,000, $50,000 it looks like more than really what I thought I was going to get. But when you have the $600 plus-up, and now the additional $300 coming on board, I mean, there was a lot of money that was distributed through this CARES Act. So majority of the 1099s are accurate, even though claimants think that they’re not. Some claimants did not realize that they had to select the withholdings on their own.”

That is not the only tax hit. Employers are just a month away from the DLIR’s annual rating when unemployment insurance rates are set. Those costs will skyrocket because employer reserves are drained and the state’s unemployment trust fund is in the red. Lawmakers must act quickly on bills — which got a Capitol hearing today — to phase in fixes for businesses.

“One adjusts the rate, first of all,” Rep. Richard Onishi, chairman of the House Labor Committee, explains. “And then the second most important thing is that we are looking to keep the employer unemployment experience at the 2019 experience level. We are basically going to look at discarding 2020 and 2021, and that should help most employers.”

Eustaquio tells Always Investigating they have been able to get 60 out of a target 100 staff to take over the call center from a third-party contractor that helped for a short while. There had been only 25 or so staff when KHON2 spoke with her a few weeks back.

“The outcomes have been much greater than, you know, ‘we’re going to have somebody call you and we’re going to expedite your claim.’ We’re not saying that anymore. We’re actually cleaning up claims as they come through,” Eustaquio said. “Of course, it’s taking a little longer. I keep telling the staff, you take 700 calls and clean up all 700 in a day, I’d rather have that then take 1,000 calls a day and clean up 200. So I’m willing to take the lower number as long as these claims are cleaned up and claimants can move on and they can feel like they’re satisfied one way or another.”

Some of the sticking points right now are whether people should stay on EB-20 — one version of extended benefits — or got for PEUC, tied to the recent CARES Act extension but not yet actually paying out.

“Selecting EB is almost like making a deal with the devil,” Yee said. “You get paid now, and you get to retroactive that to your last payments, whereas if you wait for the PEUC extension, you can only backdated to the week ending Jan. 2. But there’s an advantage to PEUC: You can potentially elongate your total benefits to June.”

Always Investigating asked the DLIR director: When with they start paying out the PEUC benefits which are still pending, and how many people are affected by the hold up?

“I don’t have the number of people offhand, Gina, and I can’t even tell you how many weeks,” Eustaquio said. “So if I give you a date today, and we don’t make that date, we’ll hear ‘why we haven’t made that date.’ I can tell you we are tirelessly working on implementing the program, the programmers are working day and night trying to come up with solutions to streamline each of the tiered processes that are in place.”

Those who picked EB-20 before the CARES Act extension was signed will face a cliff in March and can hope for another extension or to be back to work. Claimants are getting a waiver on actively looking for a job right now but that is unlikely to continue for long.

“If employers are starting to call employees back, maybe that’s the time to start saying, okay, now you have to start looking for work because there are employers out there who need you to come and help them with their business,” Eustaquio said. “It’s not a free pass forever. We’re struggling with distance learning. Right now, we have a lot of workers who have children who are at home who do need guidance. They need some supervision. So that’s made it a little bit more difficult to just say, no, everyone start looking for a job and get back to work.”

The DLIR announced on Thursday, Feb. 4, it is finally under contract on a multimillion-dollar shift to a web-based unemployment system that will replace an ancient mainframe blamed for a lot of 2020’s woes, but that transition will take 18 months to complete.

“We’re not modernizing the actual antiquated mainframe, we’re getting a whole brand new system, a web based application with upfront applications,” Eustaquio said, “not just for claimants but for employers, as well as the whole appeals application system for employers and claimants. So that’s very exciting.”

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