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Millions of Americans will receive tax forms for unemployment benefits this filing season. However, many will receive them by mistake due to fraud, creating a potential headache for recipients.
By the beginning of November, at least $ 36 billion had been lost due to inadequate unemployment payments, largely due to fraud, according to an estimate by the Office of the Inspector General for the Department of Labor.
That amount could eventually reach over $ 63 billion, the watchdog said last week.
Identity theft was among the most common frauds, according to security experts. Scammers file fraudulent unemployment claims using the stolen personal data of non-claimants.
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The scammer receives unemployment income, but the victim of the identity receives the associated tax form 1099-G. The federal government treats unemployment benefits as taxable income. (Some states do not impose tax benefits, however.)
The scammers were attracted by a relatively high pay per person, especially in the spring and summer, when the federal government paid an additional $ 600 a week. The Pandemic Unemployment Assistance program was frequently targeted because it allowed recipients to self-certify that they had lost a job.
“This is a critical issue affecting U.S. labor departments, which sometimes involves local, state and even international criminals,” said Georgia Labor Commissioner Mark Butler on unemployment fraud.
What to do?
People who receive a 1099-G form but have not received benefits should first apply to the state unemployment agency for a corrected form, according to the IRS. This revised 1099-G would show that the taxpayer did not raise money.
Some fear that it may be difficult to switch to state agencies, which were affected by delays during the pandemic amid the historical volume.
States may have different instructions or points of sale to report identity fraud. California, for example, has created a helpline for Form 1099-G questions and increased call center staff.
Taxpayers who cannot get a corrected form until they file their taxes should continue to file a correct return, according to the IRS. In other words, they should only report the income they received and not the unemployment benefits reported in 1099-G.
But they should consider explaining in a footnote to the tax return that they received an error of 1099-G, said Michael D’Addio, director of accounting firm Marcum, based in New Haven, Connecticut.
Taxpayers should also continue to request a corrected tax form even after filing, he said. Otherwise, the IRS may not have up-to-date information and may wonder about a discrepancy.
“At the end of the day, it’s very difficult to get the IRS to agree that an item is not taxable when they have a form that says it’s taxable income,” D’Addio said. “You tend to want to get this form corrected from the state.”
The IRS issued guidelines to states in late December, notifying them not to send 1099-G to people considered victims of identity fraud, which should reduce the number of people affected.
Other information
According to the agency, taxpayers do not have to file an identity theft statement with the IRS for an incorrect 1099-G. These returns are only required if the taxpayer’s e-filed return is rejected because a return using the same social security number has already been filed, according to the IRS.
Those who are concerned that their personal information has been stolen and want to protect their identity when submitting their federal tax return can request an identity protection PIN from the agency. The PIN code prevents anyone else from submitting a tax return with the taxpayer’s social security number.
There are other measures that victims of identity theft can be encouraged to take, according to the Georgia Department of Labor. They include:
- Submitting a police report and keeping a copy for presentation to creditors and credit bureaus;
- Changing passwords for email, bank and other personal accounts;
- Ask credit card companies, banks and other financial institutions to put a fraud alert in your account;
- Obtain a copy of your credit report and report any fraudulent transactions with any of the three major credit reporting companies (Equifax, TransUnion or Experian). You can also place a fraud alert in your credit file and consider a credit freeze.