130,000 residents overpaid in unemployment could owe taxes despite returning the extra cash

Connecticut

(WTNH) — As of last week, $7.1 billion was disbursed in state and federal unemployment benefits since March 13, 2020.

A record number of people filed for those benefits. Some got more money than they were supposed to. Many say they did the right thing and returned the extra money. But now many of those same people are learning they may have to pay taxes on money they returned and never used.

Department of Labor says the over-payments could happen under a number of scenarios. There were reports of the old computer software systems at the Department of Labor causing massive delays in pandemic unemployment filings.

State officials knew about the over-payments. And suspected the fallout was coming, but the impact is now becoming clear and it is overwhelming to those who are on the hook.

Kathleen Henderson from Milford applied for one week of unemployment the last April. Instead of $600, she got nearly $5,000.

Kathleen Henderson said, “I did the right thing. I paid the money back.”

After she returned the money she got a confirmation and figured that was the last of it. Until a 1099 tax form recently came in the mail.

“When I go to file my taxes I’m going to pay tax on this money that I gave back,” said an exasperated Henderson.

She is not alone. Approximately 130,000 people were overpaid. Department of Labor leaders testified before lawmakers on the appropriations committee back in August about the issue.

Deputy Commissioner Daryle Dudzinski from the Dept. of Labor said, “To date, we have approximately 50,000 potential overpayments that will be worked through and afforded due process and we estimate another 80,000 over the next several months.”

The tax division – and integrity and benefit control staff – at the Department of Labor is wading through all of the cases. In August, the commissioner was apologetic admitting a software glitch in the system.

Kurt Westby, Commissioner Department of Labor, “We want to do right by them… It’s important to get it right.”

The software glitch means hundreds of dollars in taxes Henderson can’t afford. She also says no one is picking up the phone at the Department of Labor, which is why she turned to News 8.

“You’re wasting hours of time for a mistake that is not yours,” added Henderson.

In the meantime, an email obtained by News 8 from the benefit payment control unit (BPUC) sent to a lawmaker points to a troubling resolution. In trying to get help for a different constituent the lawmaker is told;

“Her overpayment was finalized in November 2020 but the payment was applied in January 2021. Since the op (over payment) wasn’t set up when we received the payment, it went into our holding account. That means she is going to have to pay taxes on the benefits in 2020 but not get credit for the repayment until 2021. We are sorry for the inconvenience.”

We asked Governor Ned Lamont earlier in the week what the remedy should be: “I guarantee there will be a remedy. They’re not going to pay tax on money that they didn’t receive or shouldn’t receive.”

We reached out for clarification from the governor’s office. Max Reiss, the governor’s spokesperson tells News 8, “If they’re receiving a credit, then that’s consistent with what the governor said. The credit ensures money stays in individuals’ pockets.”

These taxpayers are being assessed a processing fee of $3.95 for returning the money. And this could affect their federal tax filing too.

We recently reached out to the Department of Labor and they tell us, “DOL makes every attempt to credit overpayments quickly. However, the pandemic volume has caused some delays.”

A Labor Department press secretary reports the agency has received 1.32 million applications in 11 months, about 10 years worth, and CTDOL sent out 600,000 1099 forms.

News 8’s Chief Political Correspondent Jodi Latina will stay on the story and bring you any updates.

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