SACRAMENTO, California (AP) – Unemployment agencies across the country were bombarded with so many claims during the pandemic that many struggled to distinguish the right from the criminal.
Now, simple tax forms, barely enough to fill out a half-sheet of paper, reveal the scope of identity theft that made state unemployment offices lucrative fraud after millions lost their jobs. during the pandemic.
Unemployment benefits are taxable, so government agencies must send a tax form (known as 1099-G) to people who have received benefits so they can report income on their returns. States ship 1099-G in large numbers this year after processing and paying a record number of unemployment claims.
Teri Finneman, of Lawrence, Kansas, was shocked when she received a form saying she owed taxes for $ 1,500 in unemployment payments she never received, a sign that someone probably stole her personal information and used it. to claim benefits.
“It’s extremely frustrating how many Kansans have been affected by this,” he wrote in an email to The Associated Press.
About 26 million people applied for unemployment benefits in the early months after states began ordering stoppages due to the pandemic. The unprecedented increase strained state unemployment offices that are governed by federal rules but irregularly administered by state governments, and many rely on 1960s-era software to process applications and issue payments.
The federal government, as part of the $ 2 trillion relief package approved in March, significantly expanded unemployment benefits, making it a richer target for fraud. In November, states across the country said they had paid up to $ 36 billion in undue profits, with a significant portion obtained by fraud, according to a report from the U.S. Department of Labor’s Office of the Inspector General.
The fraud is so widespread that California issued payments to someone named U.S. Sen. Dianne Feinstein, and in Ohio, Republican Gov. Mike DeWine, his wife, Fran, and Republican Lieutenant Gov. Jon Husted learned that fraudulent claims were filed on their behalf.
Now, unemployment agencies could face a new onslaught, this time from people requesting corrected tax forms.
“Open a can of worms,” said Rob Seltzer, a certified public accountant in Los Angeles and a member of the California Society of CPAs. “It really depends on how quickly (the state) can submit a corrected form.”
Ohio has established a hotline and created a website that allows residents to report identity theft. Once the state confirms that fraud has been committed, taxpayers will receive a corrected Form 1099-G. In the last two weeks, 62,000 people had filed a report, according to spokesman Thomas Betti.
“It’s easy for someone to say,‘ That’s not my problem. They sent me the form, I’ve never been to Ohio. Still, you have to be careful, “Betti said.” All the unemployment systems in the country are facing this massive amount of fraud. “
Last month, the IRS said it is likely that many victims will not be able to get a tax form corrected in time to file their federal taxes. In such cases, the IRS says taxpayers should ignore the 1099-G and file their taxes without reporting fraudulent income.
Christina Elliott, owner of BEM Financial Services, is concerned that this process could delay tax refunds for people who rely on them to move into the pandemic. He has two clients – one in California and one in Georgia – who say they received incorrect forms that showed they received up to $ 27,000 in unemployment benefits last year.
“They will literally have to investigate each one,” Elliot said of the IRS. “These people have already had their identity stolen that they did not know. Here is another problem in which they will be waiting for months just to get their (tax refunds) they owe them.”
The problem could be more serious in California, where officials mailed about 8 million tax forms last month, more than five times the number they send in a normal year. The state Department of Employment Development said it updated its website and hired another 300 agents for its call center, training them on how to handle questions on Forms 1099-G.
Rooting fraud and identity theft has been an ongoing struggle for the agency. A state audit released last week showed that from April to October, it responded to less than 2% of fraud reports. In November, it had a total of more than 77,000 such reports.
This probably included a report from Greg Musson, a business owner near Fresno. State officials contacted his company in September to inform him that one of his employees had applied for unemployment benefit in March. Musson was surprised to learn that this person was him. He froze his credit and filed a fraud report with the state unemployment department, but so far he has known nothing.
“Knowing that someone has my information and has been able to make it very personal is like destroying their home,” he said.
Carol Williams, deputy director of operations for the California Department of Employment Development, said people who receive incorrect tax forms should fill out a worksheet on the department’s website that allows officials to determine if filed a fraudulent claim.
But state lawmakers worry the agency may not be able to cope with the workload. Republican State Sen. Scott Wilk said one of his constituents was “baffled” to receive a notice that he owed taxes on $ 11,000 in unemployment benefits.
“At a time when we really need people to have confidence in their government, go through this pandemic and implement the vaccine, the last thing we need to do is also break their confidence in our ability to be competent. said Wilk.
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Associated Press reporters John Hanna in Topeka, Kansas; Andrew Welsh-Huggins in Columbus, Ohio; and Christopher Rugaber in Washington helped report.