Unemployment Fraud Creates Tax Stress for Unsuspecting Taxpayers

• Find out what to do if you receive a 1099-G for unemployment benefits you did not receive.
• Learn how to protect your identity with an Identity Protection PIN.
• Get more tips to protect yourself from identity theft.

If you didn’t have enough stress in 2020, just wait. The Office of the Inspector General for the Department of Labor has just added to our anxieties. The Office announced that improper unemployment payments led to the loss of at least $36 billion and possibly as much as $63 billion in 2020. In many cases, the improper payments are a result of unemployment fraud. These fraudsters spent the earliest months of the pandemic filing unemployment claims using stolen personal data.

What does this mean? It means millions of unsuspecting Americans will receive federal forms reporting unemployment benefits that they never received. Not only does this leave them potentially vulnerable to identify theft issues, but in the short term, it also means that the federal government expects them to pay income taxes for money someone else collected.

We’ve all been told to watch out for identity theft, but this newest method feels particularly cruel in the face of the other struggles brought by the pandemic. The scammers have taken advantage of the CARES Act’s high unemployment payouts, which included an extra $600 per week to offset the pandemic’s worst effects on the economy. In an effort to distribute the relief quickly, the Pandemic Unemployment Assistance program required little-to-no documentation. This attracted quick attention from those eager to take unethical advantage.

If you had your identity stolen, you may receive a form known as the 1099-G from the federal government. This form treats unemployment benefits as taxable income.

If You Receive a 1099-G

Luckily, a solution exists if you receive a 1099-G for unemployment benefits that you did not collect. Though it represents a bit of work from the victim, the IRS has indicated their awareness of the problem. They are working as hard as they can to help those wronged by unemployment fraud. They say that recipients of an inappropriate, incorrect 1099-G need to contact their state’s unemployment agency and ask them to send a corrected, revised form that will reflect the correct amount provided to them.

Though this may be difficult if you live in a state where the unemployment agency’s response rate has been slowed by the pandemic and increased need for assistance, some states have established hotlines dedicated to addressing this unemployment fraud issue and have increased the number of support staff available to help. This increased attention results from IRS guidance issued to states at the end of 2020. This guidance notified them of the identity fraud issue.

If you aren’t able to get a revised form by the tax filing deadline, the IRS indicates that you should simply file a return that accurately reflects the amount that you received. Be sure to discuss with your Fiducial representative how to best document your unemployment fraud issue.

No Other Steps Required

It’s completely natural to feel a bit panicked if you receive one of these forms erroneously and to worry about the impact of having been the victim of identity theft. However, the IRS has indicated that there is no need to file an Identity Theft Affidavit. The agency says that those affidavits are specifically for taxpayers whose e-filed tax return is rejected as a result of a duplication of the use of their Social Security number for a tax filing.

What can you do if you have concerns and want to take additional steps to protect your identity? You can ask for an Identity Protection PIN when you file your income taxes. Having this unique number will help keep others from using your Social Security number to file a fraudulent tax return.

Beyond that specific IRS guidance, the Georgia Department of Labor suggested the following steps to protect yourself against identity theft.

• Update your passwords on all personal accounts, including banking, shopping and email.
• Notify creditors, banks and others with whom you have an account that you may have been a victim of identity theft. They will place a special alert on your account.
• Contact your local police department to file a report. Keep a copy of that report to provide to credit agencies and others if needed.
• Start monitoring your credit report, keeping a sharp eye open for any transactions that you do not recognize. If needed, dispute transactions with your credit cards or the three credit reporting agencies (Equifax, TransUnion or Experian). If necessary ask them to freeze your credit until the situation is fully addressed and remedied.

Next steps

Did you receive a 1099-G for unemployment benefits you did not collect? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.

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For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.