Thousands of workers received the wrong tax forms from the state of Oregon in January. The errors are expected to be fixed within days. 

Thousands of people who received unemployment and paid-leave benefits during 2023 should get corrected tax forms soon from the Oregon Employment Department, which is scheduled to complete the mailings by Friday, Feb. 2.

The forms, known as 1099-G and 1099-MISC, are for benefits claimed during 2023.

For about 25% of the 122,000 people who received unemployment benefits — about 33,000 — the corrected mailings were scheduled to be completed Wednesday, Jan. 31.

The error was disclosed by the state Department of Administrative Services in a release Jan. 26. David Gerstenfeld, Employment Department director, explained what happened in a video conference call with reporters on Jan. 31.

He said DAS told his agency that a machine run by one of its vendors malfunctioned by inserting two forms into one envelope — forms not only for the person receiving benefits, but a form meant for someone else. All 1099-G forms contain some personal information, such as the home address and the final four digits of a Social Security number.

“We are asking people who received somebody else’s tax form to shred or otherwise destroy the other 1099-G form as soon as possible,” Gerstenfeld said.

“The vendor stopped the printing before most of the forms were sent. This issue affected only 1099-G forms for those who received unemployment insurance benefits — and did not affect everybody who got benefits. It affected some, but not all, of the 33,000 forms that we mailed before the vendor identified the issue and stopped the mailing.”

As an alternative to receiving the form by mail, he said, people can obtain a copy of their 1099-G form online using the Employment Department’s automated claims system.

Unemployment benefits are taxable. The 1099-G form states the benefits amount someone received during the past year. Employers, not employees, are assessed payroll taxes that go into the benefits trust fund.

Recipients of Work Share also are affected. Under this program, the unemployment benefits trust fund makes up the difference between regular wages and reduced wages resulting from fewer than 40 hours of work at participating businesses.

A different error affected the 1099 forms for 26,000 Paid Leave Oregon recipients who chose to have taxes withheld from their benefit payments. The erroneous forms list the net amounts of benefits, instead of the gross amounts. The corrected forms were to be mailed by Feb. 2.

As an alternative, recipients can obtain a copy of the tax form by going to the department’s new Frances Online system, which began making paid-leave benefits in early September.

The Legislature approved paid leave in 2019. Benefits are taxable. Employees and employers pay into a separate trust fund at a 60-40 ratio; the total is capped at 1% of an employee’s wages. There is an exemption for employers of fewer than 25 workers. Such businesses do not pay into the fund, although employees do.

Karen Madden Humelbaugh, who directs the program, said $238 million has been paid so far to more than 34,000 households.

“Issues like this are common when launching a new program along with a new technology system of this magnitude,” Gerstenfeld said. “I’m very sorry for the inconvenience this may have caused people. Fortunately, the error was caught and resolved quickly. It is a great example of how Frances Online gives us the flexibility to respond to issues as they arise and helps us make sure our customers are affected as little as possible.”

Frances Online is the Employment Department’s new automated system, which when fully operational will replace a system that dates back three decades and relies on even older technology going back to 1959. It is named after Frances Perkins, U.S. labor secretary (1933-45) under President Franklin D. Roosevelt and the first woman to lead a federal Cabinet department.

The Labor Department granted Oregon $89 million in 2009 for an upgraded system. But because of delays resulting from a succession of agency directors and managers — and critical reports by the state Audits Division and the Legislative Fiscal Office about the agency’s lack of progress — the project did not get underway until after the onset of the coronavirus pandemic in spring 2020.

The Legislature in 2021 finally budgeted $106 million, which included an add-on for Paid Leave Oregon contributions and payments that were not part of the original upgrade. Information related to employer payroll taxes for the unemployment benefits trust fund was transferred first, then employer and employee contributions to the paid leave trust fund. Those began in January 2023, followed by benefit payments in September.

The next big step for the Employment Department is a transition of current unemployment benefit payments to the new system, scheduled to go live on March 4. Employment Department officials spent most of the briefing with reporters on their preparations for the new system and a planned shutdown of the current system at the close of business on Feb. 27.

pwong@pamplinmedia.com