Fraudulent State Unemployment Claims and Forms 1099-G

(What to Do if a Fraudulent Claim Was Filed in Your Name)

Unfortunately, we can always count on thieves to take advantage of a crisis, and the COVID-19 pandemic is no exception. Because of the severe job losses resulting from the pandemic, tens of millions of individuals have filed for unemployment benefits throughout the U.S. In many instances, state unemployment agencies were overwhelmed, and struggled to process the claims. This created a perfect environment for fraud.

What happened?

Criminals used stolen personal information, including Social Security Numbers and birth dates, to submit fraudulent claims, resulting in billions in stolen funds. Those in whose names fraudulent claims were filed and payments made are now being surprised by receiving forms 1099-G. That form is used to report “Certain Government Payments,” including unemployment compensation, to the IRS. A copy is sent by the state to both the individual and the IRS. Revenue authorities look for this income on recipients’ tax returns, and omitted income generally results in a notice being issued by the government, and the need for the filer to resolve the mismatch before the return can be finalized and accepted.

When unemployment claims are filed, a state will contact the claimant’s former employer to verify the loss of employment. The employer’s response may prevent fraudulent claims, but states were so overwhelmed by the increased “regular” claims and the unusual new federal-level payments initiated by the CARES Act in response to the pandemic (which were required to be administered by the states), that many payments were approved whether or not the employers who were contacted raised a red flag.

What to do

It is important to distinguish between two related, but different issues: The fraud itself, and the tax filing hiccup created by it.

On the tax front, those who received 1099-G forms reporting fraudulent payments should request that the state issue a corrected Form 1099-G to report payments of $-0- (zero). Unfortunately, it is highly unlikely that states will issue corrected Forms 1099-G prior to April 15, and those who received fraudulent forms should consider extending their returns to allow additional time for the states to address this issue.

The IRS advises, in IR-2021-24, that those who need to file even prior to obtaining a corrected 1099-G should report only the correct amount of income they actually received. This would exclude fraudulent claims received by someone else. The odds remain strong, though, that the processing of such tax returns may be held up if the corrected 1099-G has not yet been issued.

To address the fraud itself, all victims should report the unemployment fraud to the state’s Department of Labor and the various credit reporting agencies (Equifax, Experian and Transunion). Impacted individuals also should consider contacting their banks, credit card companies, and other businesses that may have their Social Security Numbers tied to an account. Additional steps should be taken that vary by state. Maine, New Hampshire and Massachusetts will be addressed below.

New Hampshire: To report unemployment fraud in New Hampshire, go the New Hampshire Employment Security website, which can be found here.

Massachusetts: To report unemployment fraud in Massachusetts, go to the page found here.

Maine: Maine will require more discussion, because it prescribes a number of steps, not all of which are intuitive. The Maine Department of Labor (DOL) has created a Fraud Information page that can be found here. Scroll down to the section labeled “Reporting Identity Theft” for recommended steps to take for identity theft in general. However, to specifically address the 1099-G correction, the following labyrinth of steps is needed:

        1. Access a DOL FAQ PDF
        2. Scroll to the section entitled “What if I receive a 1099G and did not file for unemployment insurance in 2020?” Click on the “Contact Us Form” link shown there.
        3. On the fillable form that opens, select “Unemployment.”
        4. In addition to completing all the requested information, be sure to make the following selections in two drop-down menus on that page:
          a) Near the top of the page, select “Unknown/Other” as the “Division.”
          b) Near the bottom of the page, select “1099-G” as the “Reason for Request.”

Maine also recommends that you contact the DOL by phone between 8 AM and 3 PM EST at 1-800-593-7660.

Other states have created websites and have resources similar to those at the links above to help individuals report fraud. A related article that discusses some of the methods hackers use to steal your identity can be found here. Another, specifically addressing IRS-based identity theft (and how to prevent it), can be found here.

Taking the steps outlined above and referenced in the links will be time consuming. Nevertheless, it is critical that impacted individuals report identity theft and fraud to protect themselves from being the victims of additional fraud, and to help law enforcement address these issues.

If you have questions regarding a fraudulent 1099-G that you have received, please contact your BNN service provider at 800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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