One of the lasting lessons of the Covid-19 pandemic for businesses is our broken state unemployment systems. State governments have paid out tens of billions of dollars in bogus unemployment claims. And with claims paid comes tax forms reporting the income related to those claims.
Consider the story of just one taxpayer, as relayed by the Wall Street Journal.
Michael Baird, a 33-year-old marketing manager in Chicago, hasn't lived in Texas for several years. And yet there was a tax form from the state of Texas sitting at his parents' house in Houston, showing that the state had paid him $1,014 in unemployment benefits.
Mr. Baird was among the victims of jobless-benefits fraud who found out when they received a 1099-G tax form noting unemployment compensation, even though they never applied for or received the benefits. The forms, produced by state agencies, are also sent to the Internal Revenue Service. Unemployment benefits are usually considered taxable income, and the IRS uses them to make sure income is reported correctly.
According to the IRS, taxpayers whose identities may have been used by thieves to steal unemployment benefits should not include those benefits as income on filed tax returns, even if they received an incorrect Form 1099-G.
The IRS offers the following additional tips regarding unemployment fraud:
For employers
- Respond quickly to state notices that its employees have filed for unemployment claims, especially if the names on the notices are not employees.
- Be alert to misuse of the IRS-issued Employer Identification Number that fraudsters may use to file jobless claims.
- File a Business Identity Theft Affidavit (Form 14039-B) if the company's EIN is being used to generate fraudulent unemployment benefit claims.
- Write to the IRS to close out the business tax account if the company is going out of business, which will help curtail the misuse of dormant EINs.
For employees
- The processing of your tax return should not be delayed while your report of unemployment identity theft is under investigation.
- The American Rescue Plan of 2021 provides for a one-time exemption of $10,200 per person in unemployment benefits to individuals and couples who earned $150,000 or less last year. If you have already filed your taxes, do not file an amended return. The IRS will issue additional guidance.
- There is no requirement to file an Identity Theft Affidavit (Form 14039). A Form 14039 should be filed only if the taxpayers' e-filed tax return is rejected because a duplicate return with their Social Security number is already on file or if the IRS instructs them to file a Form 14039.
- Taxpayers who were victims of an unemployment benefits identity theft scheme should consider opting into the IRS Identity Protection PIN program, which helps prevent thieves from filing federal tax returns in the names of identity theft victims.
* Image by Bermix Studio on Unsplash