This year’s tax season brings an additional surprise to many Americans: the news that they have been victims of unemployment insurance fraud that has exceeded billions of dollars across the country.
Michael Baird, a 33-year-old marketing manager in Chicago, hasn’t lived in Texas for years. And yet, there was a Texas state tax form at his parents’ home in Houston showing that the state had paid him $ 1,014 in unemployment benefits.
Mr. Baird was one of the victims of unemployment benefit fraud who found out when they received a 1099-G tax form showing unemployment benefits, even though they had never applied for or received benefits. The forms, produced by government agencies, are also sent to the Internal Revenue Service. Unemployment benefits are usually considered taxable income, and the IRS uses them to ensure that income is reported correctly.
“I’m worried I’m going to file tax returns and the tax authorities will make sure I get this unemployment benefit and think I’m not paying taxes on it,” said Mr. Baird.
Victims are often confused when they receive fraudulent 1099-Gs. Many states recommend that victims freeze their credit and report the fraud through the National Unemployment Service website or the fraud hotlines.
“We are working with our partners in federal and state governments to find the most streamlined approach to providing clear guidance, information, support and resources to those individuals whose identities have been used to fraudulently collect unemployment benefits,” said a spokesman of the United States Department of Labor. .
The IRS has urged taxpayers not to include income from fraudulent 1099-Gs on tax returns and to seek corrected forms from states. But it is not yet clear how the IRS handles situations where there is a discrepancy between the forms received by the government and the money received by the individual.
“You want to keep people harmless in this, if they somehow get caught up in it,” said Rep. Brad Wenstrup (R., Ohio).
Michael Baird received an unemployment benefit form, although he never claimed unemployment benefits.
A late change to the Deductions Act just signed by President Biden should alleviate the tax problem. For households earning less than $ 150,000 in 2020, the first $ 10,200 per spouse is not considered income. That does not apply to households above that income level or resolves all state income tax implications.
In addition to tax forms, victims discover the fraud when they try to apply for unemployment benefits or receive reports from the state unemployment agency or their employer, according to a report from the Federal Bureau of Investigation.
Congress during the pandemic expanded unemployment benefits – with a supplement of $ 600 a week – to help workers through the crisis. But those benefits have also been targets for identity thieves. States have collectively received millions of unemployment insurance claims that officials believe are related to fraud, with losses likely amounting to billions of dollars.
The Ohio Labor Department had received 65,800 reports of fraudulent 1099-Gs from individuals through its website as of March 2 through its website. Colorado had received approximately 11,700 reports of fraudulent 1099-Gs for the 2020 tax year as of March 4.
Mr. Baird, Chicago’s marketing manager, said he had submitted a fraud report to the Texas unemployment agency’s online fraud portal. He also tried calling the Texas unemployment agency several times, but was unable to contact a representative for the agency.
“In all of this, I’ve never spoken to a real person, so it’s really hard,” he said. “You don’t even know if the steps you are taking are the right steps.”
He’s concerned about what the IRS will do if he doesn’t get an amended 1099-G form before filing tax returns.
Some US lawmakers have the same concern.
“We cannot allow their income tax refunds – which are often the largest payment a person receives each year – to be held indefinitely while the IRS investigates an identity theft claim,” a group of House members wrote last month. IRS Commissioner Charles Rettig.
Rebecca Ray said she was shocked to receive a 1099-G form from Colorado, which revealed that she applied for unemployment insurance last year.
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Rebecca Ray
A spokesman for the Texas Workforce Commission, which administers unemployment insurance for the state, said the agency can file a notice with the IRS and issue a corrected 1099-G in some cases. The spokesperson said Mr Baird has taken appropriate steps to report the matter through the state’s online fraud portal.
Rebecca Ray, 41, of Greendale, Wisconsin, said she was shocked to receive a 1099-G form from Colorado, saying she applied for unemployment insurance last year. She had not applied for benefits since the 2007-2009 recession.
Ms. Ray froze her credit to protect against identity theft. She plans to get a new job in the financial industry in the near future and is concerned about the impact of the fraudulent claim.
“The thought of having something on my record for my next background check really scares me,” she said.
Ms. Ray said she filed a request for a corrected 1099-G form in late January, but had not received it by March 8.
A spokeswoman for the Colorado Department of Labor and Employment said the state had sent the amended 1099-G tax form to Ms. Ray’s home.
“The process to distribute corrected 1099-Gs takes time because every report of an incorrect 1099-G must be manually checked for accuracy,” said the spokeswoman. “We are currently expanding our resources so that this team can process these requests as quickly as possible.”
Write to Sarah Chaney Cambon at [email protected] and Richard Rubin at [email protected]
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