Unemployment fraud can be a nightmare for taxpayers

Millions of Americans will be getting tax forms for unemployment benefits this filing season. However, many will mistakenly get them as a result of fraud, potentially giving recipients a headache.

According to an estimate by the Office of the Inspector General of the Department of Labor, at least $ 36 billion was lost to improper unemployment benefits in early November, largely due to fraud.

That amount could eventually add up to more than $ 63 billion, the watchdog said last week.

Identity theft is one of the most common forms of fraud, according to security experts. Scammers make fraudulent unemployment claims using the stolen personal information of individuals who have not applied.

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The scammer gets the unemployment income, but the identity victim gets the corresponding 1099-G tax form. The federal government treats unemployment benefits as taxable income. (However, some states don’t tax benefits.)

Scammers were drawn to a relatively high payout per person, especially in the spring and summer when the federal government paid an additional $ 600 a week. The Pandemic Un Employment Assistance program was often targeted because it allowed recipients to self-declare that they had lost a job.

“This is a critical issue plaguing labor departments in the United States, sometimes involving local, national and even international criminals,” said Mark Butler, the Georgian labor commissioner, of unemployment fraud.

Individuals who have received a 1099-G form but have not received benefits, according to the IRS, should first contact the state unemployment agency for a corrected form. This revised 1099-G would show that the taxpayer had not collected any money.

Some fear it may be difficult to get through to government agencies, who are facing delays during the pandemic in a historic volume.

States may have different instructions or channels for reporting identity fraud. California, for example, has set up a telephone hotline for Form 1099-G inquiries and more call center personnel.

Taxpayers who are unable to get a corrected form by the time they file their taxes must still file an accurate return, according to the IRS. In other words, they should only list the income they received and not the unemployment benefits listed on the 1099-G.

But they should consider explaining in a footnote to their tax return that they incorrectly received a 1099-G, said Michael D’Addio, a director at the Marcum accounting firm based in New Haven, Connecticut.

Taxpayers should continue to request a corrected tax form even after filing, he said. Otherwise, the IRS may not have updated information on hand and can inquire about a discrepancy.

“At the end of the day, it’s very difficult to get the tax authorities to say that an item is not taxable if they have a form that says it is taxable income,” said D’Addio. “You tend to want to get that corrected form from the state.”

The IRS issued guidelines to states in late December to inform them not to send 1099-Gs to individuals believed to be victims of identity fraud, which should reduce the number of those affected.

Taxpayers do not need to file an identity theft statement with the IRS for an incorrect 1099-G, according to the agency. These affidavits are only required if the taxpayer’s electronically filed return is rejected because a return with the same Social Security number has already been filed, according to the IRS.

Those concerned that their personal information has been stolen and want to protect their identity when filing their federal tax return can request an Identity Protection PIN from the agency. The PIN prevents someone else from filing a tax return with the taxpayer’s social security number.

There are other measures that potential identity theft victims are encouraged to take, according to the Georgia Department of Labor. They contain:

• File a police report and keep a copy to show to creditors and credit unions;
• Change passwords on email, bank and other personal accounts;
• Require credit card companies, banks and other financial institutions to place a fraud alert on your account;
• Get a copy of your credit report and flag any fraudulent transactions with one of the top three credit reporting companies (Equifax, TransUnion or Experian). You can also put a fraud alert in your credit file and consider freezing your credit.