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

Samuel Corum/Bloomberg via Getty Images

Many Americans will get an unwelcome surprise this tax season: the realization they were victims of unemployment fraud.

Millions of workers have collected jobless benefits during the Covid pandemic. They must pay taxes on that aid.

But criminals have stolen identities en masse to collect benefits in others’ names, according to state and federal officials. The victim, not the con artist, is the one who’ll get the tax notice.

The IRS is trying to stave off confusion and panic around fraud. It launched a website Thursday for victims of unemployment-related identity theft.

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Individuals who receive a 1099-G tax form but didn’t collect unemployment benefits may have fallen prey. (Some states may have also issued the form in error.)

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

In California alone, the state labor agency is issuing almost 8 million 1099-Gs. And more than 18 million Americans were collecting unemployment benefits at the end of January, according to the U.S. Labor Department.

How to protect yourself

Scammed taxpayers ultimately don’t have to pay the associated tax, and their tax refunds shouldn’t be delayed as a result, the IRS said.

But there are certain measures they should 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 issue any corrections;
  • Taxpayers should file an accurate tax return (one without unemployment income) even if they don’t receive a corrected 1099-G in time. (The corrected form will reflect $0 in unemployment compensation.)
  • Review free credit reports for signs of additional fraud. Consider placing a credit freeze or credit fraud alert with the credit bureaus (like Equifax, Experian and TransUnion).
  • File an identity theft complaint with the U.S. Justice Department’s National Center for Disaster Fraud. Complete a complaint form online or call 866-720-5721.
  • Consider opting into the IRS Identity Protection PIN program. This helps prevent scammers from filing federal tax returns in the names of identity theft victims.

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