While the Internal Revenue Service is working on recalculating taxes paid on unemployment benefits by early filers, other taxpayers are dealing with potential tax bills on money they didn't get.
They are victims of unemployment insurance fraud. And their numbers increased last year as millions of people filed for the jobless assistance in the wake of the COVID-19 pandemic.
To help people dealing with unemployment identity theft, the Department of Labor (DoL) has launched a new website.
Alerted by mail: Many don't learn that unemployment benefits have been fraudulently collected in their names until they receive something in the mail.
The usual indicators, notes the DoL, are:
- Mail from a government agency about an unemployment claim or payment and you did not recently file for unemployment benefits. This includes unexpected payments or debit cards and could be from any state.
- A 1099-G tax form 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 do not live or did not file for benefits.
- A notice from your employer while you're still working, indicating that your company received a request for information about an unemployment claim in your name.
When you do discover someone is using your identity to illegally collect unemployment, the next step is to report it.
Report unemployment identity theft: As soon as you discovered someone has impersonated you to get unemployment benefits, report it to your state office. The unemployment fraud DoL website has a directory you can use to find the correct office.
Read your state's specific guidance for reporting unemployment identity theft carefully. Some states may refer to unemployment as "reemployment assistance" and identity theft as "imposter fraud."
Your state officials also might require additional documentation, such as a police report you filed or a sworn affidavit, before it will open an investigation. Each state has different requirements and a different process for investigating identity theft.
Note that when you report the unemployment ID theft, you may not receive an immediate confirmation from the state. Be patient.
And don't fall for fake websites that offer to help resolve unemployment issues. The Department of Justice recently warned that fraudsters are creating websites mimicking unemployment benefit websites, including state workforce agency (SWA) websites, in order to steal personal information that can be used to commit identity theft.
Don't wait to file your taxes: If you received a 1099-G tax form for benefits you didn't receive, the state will need to issue you a corrected version. It also will update the tax record with the IRS on your behalf.
However, both the DoL and IRS say do not wait to receive a corrected 1099-G to file your taxes. The investigation could take a while and if you wait, the delay could cause you to miss tax deadlines, even ones that have been pushed from April 15 to May 17 or later.
If you did get some unemployment, but not the wrong amount shown on the tax form, when you file your taxes only include the out-of-work assistance amount that you actually received. Note, too, that the recently enacted American Rescue Plan Act (ARPA) excludes up to $10,200 in unemployment benefits from federal tax.
If you filed your federal return before the March 11 ARPA enactment date and reported and paid tax on all your unemployment, don't submit an amended return. The IRS is working on recalculating the proper tax amount and will automatically issue applicable refunds.
File additional ID theft reports: In addition to contacting your state's labor (and if needed, tax) officials, U.S. Labor Department says to also report unemployment identity theft that occurred during the COVID-19 pandemic to the U.S. Department of Justice's National Center for Disaster Fraud.
The National Center for Disaster Fraud helps law enforcement stop future unemployment identity theft. Reports to the Center also will be shared with the Labor Department's Office of Inspector General, which is the primary agency responsible for investigating unemployment fraud.
Check your credit report: As with all types of identity theft, check your credit report for suspicious activity or unauthorized lines of credit opened.
Federal law allows you to request one free credit report per year* from each of the three — Equifax, Experian and TransUnion — credit bureaus. You can do this by going to one website, AnnualCreditReport.com, or by calling toll-free (877) 322-8228. To verify your identity, you'll need to provide your name, address, Social Security number and date of birth.
*The increase in coronavirus financial and identity theft scams during the pandemic has underscored the need to also keep an eye on your financial health. Accessing your credit information is a key way to do this. So, until further notice, Equifax, Experian and TransUnion are offering free weekly credit reports.
Get an IP PIN: The IRS also has its own Identity Theft and Unemployment Benefits web page, which notes another step that victims of an unemployment benefits identity theft might want to take. Consider opting into the IRS Identity Protection PIN, or IP PIN, program.
A six-digit IP PIN used on your tax return helps the IRS know that the 1040 is being filed by you, the legitimate taxpayer, and not an identity thief.
The IP PIN program is voluntary and available to any taxpayer who can verify his or her identity. You can obtain the added security measure at the IRS' Get an IP PIN site.
You also might find these items of interest:
- Unemployment tax troubles: wrong 1099-G amounts & benefits ID theft
- Unemployment tax adjustments by IRS in the works, with first refunds to go out in May
- Lingering unemployment tax troubles: wrong amounts, wrong recipient ID info and no forms
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