SACRAMENTO, California (AP) – Unemployment agencies across the country were bombarded with so many complaints during the pandemic that many struggled to distinguish the correct from the criminal.
Now, simple tax forms – barely enough to fill half a sheet of paper – are revealing the extent of identity theft that has made state unemployment offices profitable targets of fraud after millions of people lost their jobs during the pandemic.
Unemployment benefits are taxable, so government agencies must send a tax form – known as 1099-G – to the people who received the benefits, so that they can report income on their tax returns. States are shipping 1099-Gs in large numbers this year, after processing and paying a record number of unemployment insurance claims.
Teri Finneman of Lawrence, Kansas, was surprised when she received a form saying she owed taxes on $ 1,500 in unemployment payments she never received – a sign that someone probably stole her personal information and used 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 benefits in the first few months after states began ordering closures due to the pandemic. The unprecedented increase has overwhelmed state unemployment offices that are governed by federal rules but administered in patchwork form by state governments, with many relying on 1960s software to process applications and issue payments.
The federal government, as part of its $ 2 trillion aid package approved in March, has significantly expanded aid to the unemployed, making it a richer target for fraud. In November, states across the country said they had paid up to $ 36 billion in undue benefits, with a significant portion obtained through fraud, according to a report by the Office of the Inspector General of the US Department of Labor.
The fraud is so widespread that California has issued payments to someone using the name of US Senator Dianne Feinstein, and in Ohio, Republican Governor Mike DeWine, his wife, Fran, and Republican Deputy Governor Jon Husted have learned that fraudulent claims were filed under their names.
Now, unemployment agencies may face another attack – this time from people asking for corrected tax forms.
“It opens up 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 send a corrected form.”
Ohio installed a telephone hotline and created a website that allows residents to report identity theft. As soon as the state confirms that the fraud has been committed, taxpayers will receive a corrected Form 1099-G. In the past two weeks, 62,000 people have submitted a report, according to spokesman Thomas Betti.
“It is very easy for someone to think, ‘This is not my problem. They sent me the form, I was never in Ohio. Still, you need to take care of that, ”said Betti. “All of the country’s unemployment systems are dealing with this huge amount of fraud.”
Last month, the IRS said it is likely that many victims will not be able to obtain a corrected tax form 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 the fraudulent revenue.
Christina Elliott, owner of BEM Financial Services, fears that the process could delay tax refunds for the people who rely on them 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 up to $ 27,000 in unemployment benefits last year.
“They will literally have to investigate each one,” said Elliot of the IRS. “These people have already had their identity stolen that they did not know, there is another problem that they will wait months only to receive the (refunds) that are due to them.”
The problem may be more serious in California, where authorities sent in about 8 million tax forms last month – more than five times the number they send in a normal year. The State Secretariat for Employment Development reported that it updated its website and hired over 300 agents for its call center, training them on how to deal with questions about 1099-G forms.
Eliminating fraud and identity theft has been a constant 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, there was an accumulation of more than 77,000 reports.
This probably included a report by Greg Musson, who owns a business near Fresno. State officials contacted his company in September to inform him that one of his employees had applied for unemployment insurance 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 has received no response.
“Knowing that someone has my information and was able to make it very personal is like breaking into your home,” he said.
Carol Williams, deputy chief operating officer for the California Department of Employment Development, said people who receive incorrect tax forms should complete a spreadsheet on the department’s website that will allow employees to determine whether a fraudulent complaint has been filed.
But state lawmakers fear that the agency will not be able to handle the workload. Republican state senator Scott Wilk said one of his constituents was “amazed” when he received a notice that he owed taxes on $ 11,000 in unemployment benefits.
“At a time when we really need people to trust their government, going through this pandemic and launching the vaccine, the last thing we need to do is 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 contributed reporting.