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

Many Americans will have a nasty 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 have to pay taxes on this aid.

But criminals have stolen identities en masse to collect benefits on behalf of others, according to state and federal officials. The victim, not the crook, is the one who 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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People who receive a 1099-G tax form but have not received unemployment benefits may have fallen prey. (Some states may also have issued the form in error.)

“This is a critical problem plaguing labor departments across the United States sometimes involving local, state and even international criminals,” Georgia Labor Commissioner Mark Butler said of unemployment fraud , in a press release.

In California alone, the National Labor Agency emits nearly 8 million 1099-Gs. And more than 18 million Americans were receiving unemployment benefits at the end of January, according to the US Department of Labor.

Defrauded 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 some steps 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 corrections;
• Taxpayers must file an accurate tax return (one with no unemployment income) even if they do not receive a corrected 1099-G on time. (The corrected form will show $ 0 in unemployment benefit.)
• Check free credit reports for signs of additional fraud. Consider placing a credit freeze or credit fraud alert with credit bureaus (like Equifax, Experian, and TransUnion).
• File an identity theft complaint with the National Center for Disaster Fraud at the US Department of Justice. Fill out an online complaint form or call 866-720-5721.
• Consider enrolling in the IRS Identity Protection PIN program. This helps prevent fraudsters from filing federal income tax returns on behalf of victims of identity theft.