Unemployment Fraud Victims May Find Out This Tax Season

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Photo of Rafa Elias | time | Getty Images

Many victims of identity theft related to unemployment fraud will learn of the crime this tax season.

Such fraud – in which organized crime rings and other thieves use stolen personal data to claim unemployment benefits on behalf of others – has exploded during the Covid-19 pandemic.

Victims who are unaware of an identity breach may be in for a nasty surprise: a 1099-G tax form.

The form, issued by a state unemployment agency, lists the total unemployment benefits received during the year. The IRS treats benefits as taxable income; recipients typically report 1099-G data on their federal tax return.

Victims of fraud will receive a Form 1099-G for benefits they did not receive or for more than they received. Identity thieves obtained these funds instead, leaving victims to deal with the fallout.

(Some victims may be notified of the fraud by their employer. A state unemployment agency may contact the employer to verify a layoff before paying benefits.)

Here’s the good news: Victims won’t have to pay tax on these funds. But there are steps victims must take quickly to protect their identity; failure to do so could have serious financial repercussions, such as damaged credit or the opening of bank accounts in their name.

“At the time the fraudster applied for unemployment insurance, who knows what else they used your identity for, according to Michele Evermore, senior unemployment insurance adviser at the US Department of Labor.

Flight range

Identity theft was particularly acute in 2020, when millions were likely victimized, Evermore said.

Criminals were lured by new federal programs that offered larger-than-usual weekly aid sums and had relatively lax claims requirements, which helped get funds to the unemployed faster. at a time when unemployment was skyrocketing.

In most cases, the thieves didn’t hack into the unemployment system for personal data, Evermore said — they got it from past data breaches, like the one that hit credit company Equifax in 2017.

Federal authorities and state agencies have cracked down since early 2020, instituting identity verification and other fraud prevention measures, Evermore said.

However, criminals still succeed in some cases. About $1 billion in benefits issued between July 2020 and June 2021 were due to confirmed fraud, much of it likely due to identity theft, Evermore said.

“We haven’t completely stopped the fraud,” she said. “[But] this has been such a high priority for states. If there is no significant reduction in 2021, I would be shocked.”

What to do

Also, check your credit report for any suspicious activity or unauthorized lines of credit. You can request a free credit report each week through AnnualCreditReport.com or call 1-877-322-8228, according to the Department of Labor.

Also consider freezing your credit to protect against opening new accounts in your name.

The Department of Labor also recommends reporting the incident to the U.S. Department of Justice’s National Center for Disaster Fraud, to help law enforcement shut down future thefts.

Victims can visit dol.gov/fraud or the IRS website for more information.


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