Q&A: Unemployment benefits and taxes

Here’s what to do about incorrect tax forms and other issues

With unemployment insurance fraud running rampant, thousands of Coloradans are receiving federal tax forms showing they received unemployment compensation even though they never filed a claim.

Let’s face it, no one wants to find themselves crosswise with the Internal Revenue Ser vice. The bottom line is you do not owe money on income you never received, although a false form could cause some mild headaches.

Here’s a Q&A on what to do:

What documents should I expect to receive if I claimed unemployment benefits in 2020?

You should receive an IRS form 1099-G, which lists the amount of unemployment insurance paid during the year and how much in taxes was collected. The Colorado Depar tment of Labor and Employment mailed some 1099-G forms with incorrect taxpayer-identification numbers but corrected forms have been mailed. If you did not receive a corrected copy, a form should be available on your MyUI+ account.

What if I received a 1099-G, but I didn’t claim unemployment insurance benefits?

You likely are the victim of identity theft, and someone has filed a fraudulent claim in your name.

First, you need to visit the Colorado Department of Labor and Employment’s website to file a report on an invalid 1099 form: cdle.colorado.gov/tax-form1099-g. Next, contact all three consumer credit reporting agencies to put a fraud alert on your name and Social Security number. Then, keep a record of your invalid form, your claim or case number, your fraud report and other documents for future reference.

The IRS recommends asking your state labor department for a corrected 1099-G.

Do I have to pay taxes on what the form says I received even though I did not file a claim?

No. Go ahead and file an accurate tax return, reporting only the income you actually received, the IRS says on its website. It’s OK if you have not received a corrected 1099-G. The IRS also is waiving a requirement to file an Identity Theft Af fidavit, known as Form 14039. That form only will be required if a taxpayer’s electronic tax filing is rejected because there already is a return on file with the same Social Security number or if the IRS for some other reason asks for it.

In an advisor y to state labor depar tments, the IRS said, “There should be no effect on the processing of tax returns or processing tax refunds for those taxpayers whose identities were fraudulently used to claim state-issued unemployment benefits.”

What if I received a false 1099-G from a state other than Colorado?

You need to contact that state’s labor depar tment.

Websites and phone numbers for those agencies can be found here: dol.gov/agencies/eta/unemployment-insurance-paymentaccuracy/reportunemployment-insurance-fraud

What else should I do to protect myself from financial fraud?

The IRS recommends taxpayers who are victims of unemployment fraud opt into the IRS Identity Protection PIN program. People who enroll receive a six-digit number that helps prevent thieves from filing federal tax returns in their names. The Identity Protection PIN program is voluntar y and open to any taxpayer who can verify his or her identity. See more details at Get an IP PIN.

Do I have to pay taxes on unemployment benefits I received?

Yes. It may seem unfair since state unemployment benefits are funded through a tax placed on businesses. But it’s federal law.

And this year, unemployment recipients are on the hook for taxes on most of the extra federal and state unemployment benefits they received because of the pandemic.

For example, if you received the additional

$600 unemployment relief provided by the CARES Act that was paid between April 5 and July 31, that could be up to $9,600 in taxable income. And if you received Gov. Jared Polis’s one-time $375 stimulus payment in 2020, that, too, is taxable income.

The one-time stimulus payments, such as the $1,200 delivered at the beginning of the pandemic to most Americans, are not taxable.