If you’ve been following the news, you know that unemployment figures have increased since the beginning of the COVID-19 pandemic in early 2020. With many small businesses shutting down – and large companies cutting back on their workforces – a lot of Americans are relying on unemployment benefits to make ends meet.
According to a recent article in the Journal of Accountancy, the rise in unemployment claims has been linked to an increase in the theft of unemployment benefits through identity theft. We want our Addition Financial members to be on the lookout for warning signs of unemployment fraud. Here’s what you should know.
What is Unemployment Fraud?
Unemployment fraud occurs when a thief steals someone’s personal information and uses it to apply for and receive state unemployment benefits. According to the IRS, unemployment scams have skyrocketed during the COVID-19 pandemic.
The issue for taxpayers who are the victims of unemployment-related identity theft is that state unemployment benefits are considered to be taxable income at the federal level. If someone applies for and receives state unemployment benefits in your name, the IRS will believe you have received that money and expect you to pay taxes on it.
Of course, you should also be aware that if someone has the information they need to file a fraudulent unemployment claim in your name, they also have the information they need – including your name and Social Security Number – to perpetrate other types of fraud as well.
How Will You Know if You’re a Victim of Unemployment Fraud?
If you don’t file for unemployment, how will you know if someone has used your identity to collect unemployment benefits? The most common sign is receiving a copy of Form 1099-G Certain Governmental Benefits from your state unemployment agency.
Your state unemployment agency is required to send Forms 1099-G to all recipients of unemployment benefits every calendar year. If you did not apply for unemployment benefits, receiving this form is a clear indication that someone has stolen your identity and used it to collect unemployment benefits.
What Should You Do If You Believe Your Identity Has Been Used for Unemployment Fraud?
Anybody who receives Form 1099-G in the mail and neither applied for nor received unemployment benefits should immediately contact the state unemployment agency to report the mistake. In Florida, the website is FloridaJobs.org. If you live in Florida and believe you have been a victim of unemployment-related identity theft, you may report it in two ways:
- Complete the online Reemployment Assistance Fraud form by clicking here; or
- Call to report the fraud at (800) 342-9909.
You should report the fraud immediately. At the same time, you should request a corrected Form 1099-G that shows $0 in unemployment benefits and file that with your federal income tax return.
If you live in a state other than Florida, you can Google the contact information for your state’s unemployment office and call them to report the fraud.
Guidance from the Internal Revenue Service
In an update on the IRS website at the end of 2020, the IRS sought to clarify a point of confusion about reporting unemployment-related identity theft. Taxpayers who have been victims of unemployment fraud are required to file only the corrected Form 1099-G. They are not required to file any additional forms.
The most commonly asked question by taxpayers involves filing Form 14039, Identity Theft Affidavit. While it’s certainly understandable for taxpayers to believe they should file Form 14039, the IRS explains that the identity theft affidavit is used:
“...only if the taxpayer’s e-filed return is rejected because a return using the same Social Security number already has been filed.”
The most important thing you can do is to get Form 1099-G from your state unemployment agency showing that you received $0 in unemployment benefits and file it together with an accurate federal income tax return.
What if You Received Unemployment Benefits?
If you did receive state unemployment benefits in 2020, then you are required to report them on your federal income tax return. You should receive Form 1099-G from your state’s unemployment office. The form should include the total amount you received as well as the total of any federal income tax that was withheld from your benefits.
You should receive Form 1099-G by January 31. If you have not received the form by that date, you should contact the unemployment office and request one as soon as possible. Remember that tax day is April 15, 2021.
How to Protect Yourself from Federal Tax Return Identity Theft
At Addition Financial, we believe that taxpayers should avail themselves of any protections offered to minimize the risks of identity theft. Fortunately, the Internal Revenue Service offers an easy way to protect yourself from federal tax return identity theft.
For a while now, the IRS has been issuing identity protection PINs (IP PINs) to taxpayers who have been victims of identity theft. The IP PIN is used on your tax return and you will receive a new one each year.
As of 2021, the IRS is allowing eligible taxpayers to request an IP PIN as a preemptive measure to prevent identity theft. To receive an IP PIN, you must go through a rigorous identity verification process. If you wish your spouse and/or dependent children to receive IP PINs, they must go through the same process.
You should know that if you request an IP PIN, you will need to use it regardless of how you file your tax return. There are specific rules for including the IP PIN on your tax return. If your spouse or dependents have been issued IP PINs, their numbers will need to appear on your tax return as well. You can find additional information on the IRS website, here, and apply for an IP PIN here.
It’s always a good idea to do what you can to protect your personal information. You can protect your Social Security Number by keeping your card locked in a secure location and not carrying it around with you. You should never give out your SSN to someone you don’t know or to somebody who calls looking for it.
