Tax Returns To Stolen ID Victims Show Massive Unemployment Fraud

Tax forms states are sending people listed as having received unemployment benefits are likely to reveal to many addressees that their identities were used in pandemic-related fraud schemes, the Associated Press (AP) reported.

Because unemployment benefits are taxable, states are sending 1099-G forms that are used to complete federal tax returns.

The AP cited examples such as an Ohio woman who opened a 1099-G reflecting payments of more than $17,000 to her 83-year-old husband. He had received none, and he hadn’t worked for more than a dozen years, so wouldn’t have been eligible to receive any.

Also in Ohio, the AP reported, the state’s governor and his wife, in addition to the state’s lieutenant governor, received 1099-G forms for unemployment benefits they had neither sought nor received.

According to the AP, some 26 million Americans sought unemployment benefits in the first months of the pandemic, and many states didn’t have the capacity to process them effectively.

What’s more, the Department of Labor estimated in January that states had paid out $36 billion improperly, largely due to fraud.

Turning to California, the AP reported that government officials suspect fraud has reached a minimum of $11 billion — $810 million of it in the names of prisoners who by virtue of their incarceration were ineligible.

Officials in California have publicly expressed concern about what likely will be a wave of individuals asking why they received 1099-G forms listing benefits they never received. The AP quoted Los Angeles Certified Public Accountant Rob Seltzer, who is a member of the state’s Society of CPAs, as saying: “It does open a can of worms. It really depends upon how fast the [state] is able to send out a corrected form.”

“Every unemployment system in the country is dealing with this massive amount of fraud,” he said, per the AP.

The AP said the IRS is advising taxpayers who receive fraudulent 1099-G forms and don’t get corrected versions from their states before the federal tax deadline to pay their federal taxes as if they’d never received a 1099-G form.

In related news, Florida has reported a surge in unemployment benefits in recent weeks, and a state official said the cause may be a spike in unemployment fraud.