SACRAMENTO, California (AP) – Unemployment agencies across the country were bombarded with so many claims during the pandemic that many struggled to tell the right thing from the criminal.
Now simple tax forms – barely enough to fill half a sheet of paper – reveal the scale of identity theft that made state-run unemployment agencies lucrative targets for fraud after millions of people lost their jobs in the pandemic.
Unemployment benefits are taxable, so government agencies must send a tax form – known as a 1099-G – to people who have received the benefits so that they can report the income on their tax returns. States are sending 1099-Gs in large numbers this year after processing and payment of a record number of unemployment claims.
Teri Finneman of Lawrence, Kansas, was surprised to receive a form that stated that she owed tax on $ 1,500 in unemployment benefits that she never received – a sign that someone had likely stolen her personal information and was using it to claim benefits.
“It is extremely frustrating how many Kansans have been affected by this,” she wrote in an email to The Associated Press.
Nearly 26 million people applied for unemployment relief in the first months after states ordered closure due to the pandemic. The unprecedented rise in state unemployment offices that are under federal rules but managed in a patchwork fashion by the state governments, with many relying on software from the 1960s to process applications and make payments.
The federal government, as part of its $ 2 trillion aid package approved in March, has significantly expanded jobless aid, making it a richer target for fraud. In November, states across the country said they had paid a whopping $ 36 billion in improper benefits, a significant portion of which was obtained through fraud, according to a report by the Office of Inspector General of the United States Department of Labor.
The fraud is so widespread that California made payments to someone using the name of U.S. Senator Dianne Feinstein, and in Ohio Republican Gov. Mike DeWine, his wife Fran, and Republican Lieutenant Jon Husted found out that fraudulent claims had been made on their name.
Now unemployment agencies may face another attack – this time from people asking for corrected tax forms.
“It opens a can of worms,” said Rob Seltzer, a Los Angeles chartered accountant and a member of the California Society of CPAs. “It really depends on how quickly the (state) is able to send a corrected form.”
Ohio has set up a telephone hotline and created a website where residents can report identity theft. Once the state confirms that fraud has been committed, taxpayers will receive a corrected 1099-G form. According to spokesman Thomas Betti, 62,000 people had reported the crime in the past two weeks.
‘It’s very easy for someone to say,’ This isn’t my problem. They sent me the form, I’ve never been to Ohio. “Still, you have to take care of this,” said Betti. “Every unemployment system in the country is dealing with this massive amount of fraud.”
Last month, the IRS said it is likely that many victims will not be able to get a corrected tax form in time to file their federal taxes. In those cases, the IRS says taxpayers should ignore the 1099-G and file their taxes without reporting the fraudulent income.
Christina Elliott, owner of BEM Financial Services, is concerned that this process could delay tax returns for people counting on it to survive the pandemic. She has two clients – one in California and one in Georgia – who say they received incorrect forms showing that they received a whopping $ 27,000 in unemployment benefits last year.
“They will literally have to examine them all,” Elliot said of the IRS. “These people already had a stolen identity that they knew nothing about, here’s another problem where they will wait months to get their (tax refund) due to them.”
The problem could be most acute in California, where officials mailed nearly 8 million tax forms last month – more than five times the number they send in a normal year. The State Employment Development Department said it has updated its website and hired an additional 300 agents for its call center, to train them on how to handle questions about the 1099-G forms.
Eliminating fraud and identity theft is an ongoing battle for the agency. A state audit released last week showed it responded to less than 2% of fraud reports from April to October. In November, it was backed by more than 77,000 such reports.
That likely included a report from Greg Musson, who has a business near Fresno. Government officials contacted his company in September to let him know that one of his employees had applied for unemployment benefits in March. Musson was surprised to learn that he was that person. He stopped his credit and filed a fraud report with the state unemployment department, but so far he hasn’t heard back.
“To know that someone has my information and can get very personal with it is like having your house broken into,” he said.
Carol Williams, chief deputy director of operations for the California Employment Development Department, said that people who receive incorrect tax forms should complete a worksheet on the department’s website that allows officials to determine whether a fraudulent claim has been made.
But state lawmakers worry the agency may not be able to handle the workload. Republican State Senator Scott Wilk said one of his constituents was “dumbfounded” when he was told he owed taxes on $ 11,000 in unemployment benefits.
“At a time when we really need people to have confidence in their government, get through this pandemic and roll out the vaccine, the last thing we need to do is add even more confidence in our ability to be competent destroy it, ”said Wilk.
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Reporters John Hanna of Associated Press in Topeka, Kansas; Andrew Welsh-Huggins in Columbus, Ohio; and Christopher Rugaber in Washington contributed to the reporting.