Tax forms help reveal extent of unemployment fraud in US
SACRAMENTO, Cal if. — Unemployment agencies across the country became lucrative targets for criminals when they were bombarded with claims last year as millions lost jobs due to coronavirus shutdowns.
Now, simple tax forms being sent to people who never collected unemployment benefits are revealing their identity was likely stolen months ago and used to claim bogus benefits that have totaled billions of dollars across the country.
In California alone, state officials say the fraud totaled at least $11 billion and likely much more.
Unemployment benefits are taxable, so government agencies send a 1099-G form to people who received them so they can report the income on their tax returns. States are mailing 1099-Gs in huge numbers this year after processing and paying a record number of claims.
In Ohio, Bernie Irwin was shocked two weeks ago when she opened the mail and found
a 1099-G form saying her husband had claimed $17,292 in unemployment benefits last year. The only problem: Jim Irwin, 83, hadn't worked in 13 years.
Bernie Irwin, 86, had trouble reaching state authorities but was finally able to lodge a complaint. Her daughter-in-law and a friend also received the tax forms, as did Republican Gov. Mike DeWine, his wife, Fran, and Republican Lt. Gov. Jon Husted, even though none of them had claimed unemployment benefits.
Irwin said what bothered her the most was “the action that is taken against you without you being aware.”
Nearly 26 million people requested unemployment aid in the initial months after states began ordering shutdowns . The unprecedented surge strained state unemployment offices that are governed by federal rules but administered in patchwork fashion by state governments, with many relying on 1960s-era software to process applications and issue payments.
The federal government, as part of its $2 trillion relief package approved in March, significantly expanded jobless aid, making it a richer target for fraud. By November, the U.S. Department of Labor's Office of Inspector General estimated states across the country had paid as much as $36 billion in improper benefits, with a significant portion obtained through fraud. In California, the state sent at least $810 million in fraudulent payments to prison inmates.
Now, overwhelmed unemployment agencies could face another onslaught — this time from people requesting corrected tax forms.
“It does open a can of worms,” said Rob Seltzer, a certified public accountant in Los Angeles and a member of the California Society of CPAs. “It really depends upon how fast the (state) is able to send out a corrected form.”
Ohio has set up a telephone hotline and created a website allowing residents to report identity theft. Once the state confirms fraud has been committed, taxpayers will receive a corrected 1099-G form. In the past two weeks, 62,000 people had filed a report, according to spokesman Thomas Betti.
“It's really easy for somebody to be like, `This isn't my problem. They sent me the form, I've never been to Ohio.' Still, you need to take care of this,” Betti said. “Every unemployment system in the country is dealing with this massive amount of fraud.”