Unemployment scams will cause woe at tax time

We are just seeing the tip of the identity theft iceberg. People who received unsolicited debit cards from state unemployment bureaus are warned that their identities have been stolen. But what about the millions of Americans who don’t know their identities have been used to collect unemployment benefits?

They will be in for a rude awakening in January when they receive a 1099-Gform, detailing payout of unemployment money on which they nowowe taxes.

Howcould that happen? Ever since the major credit breaches of recent years, identity information has been for sale on the so-called darkweb.

Nowit has been used to open online bank accounts to receive benefits through the less-protected Pandemic Unemployment Assistance portals maintained by each state.

In California, thousands of unemployment claims have been fraudulently filed in the names of prisoners, netting an estimated $400 million in benefits before the scam was uncovered.

A taxing surprise

The arrival of tax notices will be a shocking moment— and so far no government agency seems prepared to handle the wave of indignant protests the 1099s will generate. The IRS response was to pass the buck to the state unemployment departments.

I received this answer froman IRS employee tomy questions: “People should make sure to use whatever process the issuing agency has for correcting a 1099. If it was for benefits they didn’t receive, fraud or whatever, this means that the (issuer) will, effectively, need to issue a corrected zerodollar 1099. That will help avoid any unnecessary follow-up correspondence (fromthe IRS) resulting whenwe match up the 1099s to what people actually report on their return.”

If the IRS thinks people can get through to their state unemployment bureaus to issue “corrected” 1099 forms, they must be living on a different planet. Many people still haven’t been able to register for benefits they deserve, or certify once approved— or report fraud.