Taxpayers Beware: Unemployment Fraud Claims Are on the Rise

By Barbara Ashorn, Tax Shareholder

With the rise in unemployment filings and expanded unemployment benefits introduced as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, several states across the nation are experiencing a surge in fraudulent unemployment claims.

According to the U.S. Department of Labor (DOL), you may be a victim of unemployment identity theft if you received:

• Mail from a government agency about an unemployment claim or payment although you did not recently file for unemployment benefits. This includes unexpected payments or debit cards and could be from any state.
• An IRS Form 1099-G reflecting unemployment benefits you weren’t expecting. Box 1 on this form may show unemployment benefits you did not receive or an amount that exceeds your records for the unemployment benefits you did receive. The form itself may be from a state in which you did not file for benefits.
• While you are still employed, a notice from your employer indicating that your employer received a request for information about an unemployment claim in your name.

Reporting Unemployment Identity Theft

If you have fallen prey to unemployment fraud, the DOL and Internal Revenue Service (IRS) encourages you to take these steps:

• Report your unemployment identity theft to the state where it occurred and request a corrected Form 1099-G. To file a report, use the State Directory for Reporting Unemployment Identity Theft located on the DOL’s website.
• When you file your income taxes, ONLY include income you actually received, even if you have not received a corrected 1099-G from the state. The processing of your tax return should not be delayed while your report of unemployment identity theft is under investigation.
• Consider opting into the IRS’ Identity Protection (IP) PIN program, which provides an IP PIN number that helps prevent thieves from filing federal tax returns in the names of identity theft victims.

The IRS has also stated that taxpayers who have been victims of this scam will not be required to file a Form 14039, Identity Theft Affidavit. This should be filed only if the taxpayers’ e-filed tax return is rejected because a duplicate return with their Social Security number is already on file.

IRS Information for Employers

Employers are often the first line of defense against unemployment fraud. To help minimize any liability, employers should:

• Respond quickly to state notices that its employees have filed for unemployment claims, especially if the notice is for an employee who is still working or for a person who never worked for the organization.
• Be alert to misuse of the IRS-issued Employer Identification Number that fraudsters may use to file jobless claims.
• File a Form 14039-B PDF, Business Identity Theft Affidavit, if the company’s EIN is being used to generate fraudulent unemployment benefit claims.

To learn more about how unemployment fraud may impact you or your business, contact Doeren Mayhew today.