This year’s tax season is bringing an extra surprise to many Americans: the news that they have been victims of unemployment insurance fraud that has reached billions of dollars across the country.
Michael Baird, a 33-year-old marketing manager from Chicago, has not lived in Texas for several years. Still, there was a Texas state tax form at his parents’ home in Houston, showing that the state had paid him $ 1,014 in unemployment insurance.
Mr. Baird was among the victims of unemployment benefits fraud they discovered when they received a 1099-G tax form stating unemployment insurance, although they never applied for or received benefits. The forms, produced by state agencies, are also sent to the IRS. Unemployment benefits are generally considered to be taxable income, and the IRS uses them to ensure that income is reported correctly.
“My concern is that I’m going to ask for taxes and the IRS is going to see if I have this unemployment benefit and think I’m not paying taxes on it,” said Baird.
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 the fraud hotlines.
“We are collaborating with our partners in the federal and state governments to identify the most streamlined approach to providing clear guidance, information, support and resources for those individuals who have used their identities to fraudulently obtain unemployment benefits,” said a spokesman. of the United States Department of Labor.
The IRS has urged taxpayers not to include revenue from fraudulent 1099-Gs in tax returns and to seek corrected forms from the states. But it is still unclear how the IRS is dealing with situations where there is a mismatch between the forms received by the government and the money received by the individual.
“You want to keep people harmless in this, if they get caught in any way,” said Rep. Brad Wenstrup (R., Ohio).
Michael Baird received a form informing him of unemployment insurance, although he never applied for unemployment insurance.
A late change in the relief law that has just been signed by President Biden is expected to alleviate the tax problem. For families earning less than $ 150,000 in 2020, the first $ 10,200 per spouse will not be treated as income. This does not address households above this income level, nor does it address all the implications of the state 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 Bureau of Investigation.
During the pandemic, Congress expanded unemployment benefits – offering up to $ 600 a week – to help workers during the crisis. But these benefits have also been targeted by identity thieves. States have collectively received millions of claims for unemployment insurance that the authorities believe are linked to fraud, with losses likely in the billions of dollars.
The Ohio Department of Labor received 65,800 reports of fraudulent 1099-Gs from individuals through its website as of March 2. Colorado received about 11,700 reports of fraudulent 1099-Gs for fiscal 2020 on March 4.
Baird, the Chicago marketing manager, said he sent a fraud report to the Texas unemployment agency’s online fraud portal. He also tried to call the Texas unemployment agency several times, but was unable to connect with an agency representative.
“In all of this, I never talked to a real person, so it’s very complicated,” he said. “You don’t even know if the steps you’re taking are the right ones.”
He is concerned about what the IRS will do if he does not receive an amended 1099-G form before filing taxes.
Some US lawmakers have the same concern.
“We cannot allow the income tax refund – which is often the largest individual payment an individual receives each year – to be suspended indefinitely while the IRS investigates an identity theft complaint,” wrote a group of House members. last month to IRS Commissioner Charles Rettig.
Rebecca Ray said she was shocked to receive a 1099-G form from Colorado indicating that she filed for unemployment insurance last year.
Photograph:
Rebecca Ray
A spokesman for the Texas Workforce Commission, which administers unemployment insurance for the state, said the agency could issue a notice with the IRS and, in some cases, issue a corrected 1099-G. The spokesman said Baird took the right steps when reporting the case through the state’s online fraud portal.
Rebecca Ray, 41, of Greendale, Wisconsin, said she was shocked to receive a 1099-G form from Colorado indicating that she applied for unemployment insurance last year. She had not applied for benefits since the 2007-09 recession.
Ms. Ray froze her credit to protect herself from identity theft. She plans to get a new job in the financial sector in the near future and worries about the impact of the fraudulent action.
“The thought of having something on my record for my next background check totally scares me,” she said.
Ms. Ray said she filed a corrected Form 1099-G application at the end of January, but did not receive it until March 8.
A Colorado Department of Labor and Employment spokeswoman said the state had sent the amended 1099-G tax form to Ray’s home.
“The process of delivering corrected 1099-Gs takes time because each report of an incorrect 1099-G needs to be manually checked for accuracy,” said the spokeswoman. “We are currently expanding resources so that this team can process these requests as quickly as possible.”
Write to Sarah Chaney Cambon at [email protected] and Richard Rubin at [email protected]
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