Taxpayers can be victims of unemployment fraud. The IRS wants to help

Many Americans will have an unwelcome surprise this tax season: the realization that they have been victims of unemployment fraud.

Millions of workers received unemployment benefits during the Covid pandemic. They must pay taxes on this aid.

But criminals stole mass identities to collect benefits on behalf of others, according to state and federal officials. The victim, not the swindler, will receive the tax notice.

The IRS is trying to avoid confusion and panic around fraud. She launched a website on Thursday for victims of unemployment-related identity theft.

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Individuals who received a 1099-G tax form, but did not collect unemployment insurance, may have been victims. (Some states may also have issued the form in error.)

“This is a critical issue that is plaguing labor departments in the United States, involving local, state and even international criminals,” Mark Butler, Georgia’s labor commissioner, said about unemployment fraud in a statement.

In California alone, the state employment agency is issuing nearly 8 million 1099-Gs. And more than 18 million Americans were receiving unemployment insurance at the end of January, according to the US Department of Labor.

Defrauded taxpayers are ultimately not required to pay the associated tax and, as a result, repayment of their taxes should not be delayed, the IRS said.

But there are certain measures they must take, according to the federal agency:

• Contact the state agency that issued the form to report fraud;
• Ask the state agency to issue a corrected 1099-G. The state will need time to investigate the fraud and make corrections;
• Taxpayers must submit an accurate tax return (without unemployment income), even if they do not receive a 1099-G corrected in time. (The corrected form will reflect $ 0 in unemployment insurance.)
• Review free credit reports for signs of additional fraud. Consider placing a freeze or credit fraud alert on credit bureaus (such as Equifax, Experian and TransUnion).
• File an identity theft complaint with the US Department of Justice’s National Center for Disaster Fraud. Fill out an online claim form or call 866-720-5721.
• Consider opting for the IRS identity protection PIN program. This helps prevent scammers from filing federal tax returns on behalf of victims of identity theft.