Victims of unemployment benefit fraud face a seasonal tax surprise

Mr. Baird was one of the victims of an unemployment benefit fraud they learned when they received a 1099-G tax form stating unemployment benefits, even though they never applied for or received it. the benefits. The forms, produced by state agencies, are also sent to the Internal Revenue Service. Unemployment benefits are usually considered taxable income and the IRS uses them to make sure income is reported correctly.

“My concern is that I’m applying for taxes and the IRS will see that I received this unemployment benefit and I think I don’t pay taxes on it,” Baird said.

Victims are often confused when they receive fraudulent 1099-Gs. Many states recommend that victims freeze their credit and report fraud through the state unemployment agency website or fraud phone lines.

“We are collaborating with our partners across the federal and state government to identify the most rational approach to providing clear direction, information, support and resources to those people who have used their identity to fraudulently collect benefits unemployment, “said a spokesman for the U.S. Department of Labor. .

The IRS has been urging taxpayers not to include fraudulent 1099-G income in tax returns and to look for corrected forms in states. But it is still unclear how the IRS handles situations where there is a mismatch between the forms received by the government and the money received by the individual.

“You want to make people harmless in that regard, if you get caught up in it,” said Rep. Brad Wenstrup (R., Ohio).

A late change in the assistance law just signed by President Biden should lessen the tax problem. For households earning less than $ 150,000 by 2020, the first $ 10,200 per spouse will not be treated as income. This does not address families above this income level or address all state implications for income tax.

In addition to tax forms, victims discover fraud when they try to apply for unemployment benefits or receive notifications from the state unemployment office or their employer, according to a notice from the federal investigation office.

During the pandemic period, Congress has expanded unemployment benefits — offering up to $ 600 a week — to help workers weather the crisis. But these benefits have also been a target for identity thieves. States have collectively received millions of unemployment insurance claims that officials believe are related to fraud, with likely losses of billions of dollars.

The Ohio Department of Labor had received 65,800 fraudulent 1099-G complaints from individuals through its website on March 2. Colorado had received nearly 11,700 fraudulent 1099-G complaints for fiscal year 2020 on March 4th.

Baird, Chicago’s marketing manager, said he filed a fraud report on the Texas unemployment agency’s online fraud portal. He also tried to call the Texas unemployment agency several times, but was unable to contact a representative of the agency.

“In all of this, I haven’t even talked to a real person, so it’s really complicated,” he said. “You don’t even know if the steps you take are the right steps.”

He worries what the IRS will do if he doesn’t get a modified Form 1099-G before filing taxes.

Some U.S. lawmakers have the same concern.

“We cannot allow their income tax returns (which are often the largest payment each individual receives each year) to be withheld indefinitely while the IRS investigates a claim for identity theft,” one group wrote. of members of the House last month to Commissioner Charles Rettig.

A spokesman for the Texas Workforce Commission, which administers unemployment insurance for the state, said the agency can issue a notice to the IRS and, in some cases, issue a corrected 1099-G. The spokesman said Baird took the right steps to report the case through the state’s online fraud portal.

Rebecca Ray, 41, of Greendale, Wisconsin, said she was shocked to receive a Colorado Form 1099-G stating that she applied for unemployment insurance last year. He had not applied for benefits since the 2007-09 recession.

Mrs. Ray froze her credit to protect herself from identity theft. He 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 idea of ​​having something on my record for my next background check baffles me completely,” he said.

Ms. Ray said she filed an application for a corrected Form 1099-G in late January, but had not received it since March 8.

A spokeswoman for the Colorado Department of Labor and Employment said the state had mailed 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 has to be checked manually to check its accuracy,” the spokeswoman said. “We are currently expanding resources, so this team can process these requests as soon as possible.”

Write to Sarah Chaney Cambon to [email protected] and Richard Rubin to [email protected]