Victims of unemployment fraud may find out this tax season

Many victims of identity theft linked to unemployment fraud will learn of the crime this tax season.

Such fraud — whereby organized crime rings and other thieves use stolen personal data to claim unemployment benefits in others’ names — has surged during the Covid-19 pandemic.

Victims unaware of an identity breach may get an unwelcome surprise: a 1099-G tax form.

The form, issued by a state unemployment agency, lists the total unemployment compensation collected over the year. The IRS treats benefits as taxable income; recipients generally report the 1099-G data on their federal income tax return.

Fraud victims will get a 1099-G form for benefits they didn’t receive, or for a larger sum than they collected. Identity thieves got those funds instead, leaving victims to deal with the fallout.

(Some victims may be notified of the fraud by their employer. A state unemployment agency may contact the employer to verify a layoff before issuing benefits.)

Here’s the good news: Victims won’t owe tax on those funds. But there are steps victims should take quickly to protect their identity; not doing so could have severe financial repercussions like damaged credit or having bank accounts opened in their name.

“By the time the fraudster has applied for unemployment insurance, who knows what else they used your identity for,” according to Michele Evermore, a senior policy advisor for unemployment insurance at the U.S. Department of Labor.

Identity theft was especially acute in 2020, when millions of people were likely victims, Evermore said.

Criminals were lured by new federal programs that offered larger-than-usual sums of weekly aid and had relatively lax claiming requirements, which helped expedite funds to the jobless at a time of ballooning unemployment.

In most cases, thieves didn’t hack the unemployment system for personal data, Evermore said — they got it from past data breaches, like the one that impacted the crediting reporting company Equifax in 2017.

Federal officials and state agencies have clamped down since early 2020, instituting identity verification and other fraud-prevention measures, Evermore said.

However, criminals are still successful in some cases. About $1 billion of benefits issued between July 2020 and June 2021 was due to confirmed fraud, much of it likely due to identity theft, Evermore said.

“We haven’t completely shut down the fraud,” she said. “[But] it’s been such a huge priority for states. If there’s not a significant reduction in 2021 I’d be shocked.”

Further, check your credit report for suspicious activity or unauthorized lines of credit. You can request a free credit report every week through AnnualCreditReport.com or call 1- 877-322-8228, according to the Labor Department.

Also, consider freezing your credit to protect against new accounts being opened in your name.

The Labor Department also recommends reporting the incident to the U.S. Department of Justice’s