Because of the pandemic, millions of Americans received unemployment benefits issued by state agencies, and criminals have taken advantage of this scenario to commit tax fraud. Why could the IRS be asking for unemployment compensation that you did not receive?
Millions of Americans, in the last 12 months, have lost jobs permanently or temporarily and have received unemployment benefits issued by state agencies.
However, according to the IRS website, in some cases, criminals sought to exploit the situation, filing for fraudulent unemployment benefits using stolen identities. That is why now, taxpayers who were victims of identity theft have been receiving Form 1099-G for unemployment compensation they did not receive.
As unemployment benefits are taxable income, states issue Forms 1099-G, to recipients and to the IRS to report the amount of taxable compensation received and any withholding.
If you were sent a Form 1099-G for 2020 unemployment compensation that you did not receive, you should take the following steps:
• Contact the issuing state agency to report fraud. The U.S. Department of Labor maintains a list of state contact information to report unemployment compensation fraud.
• Ask state agency to issue a corrected 1099-G. The state will need time to investigate the fraud complaint and make any corrections.
• File an accurate federal tax return reporting only income received, even if a corrected 1099-G has not yet been received.
•Follow Federal Trade Commission recommendations for identity theft:
*Review free credit reports for signs of additional fraud from the credit bureaus
*Consider a credit freeze or credit fraud alert through the credit bureaus
• File an identity theft complaint with the U.S. Department of Justice's National Center for Disaster Fraud (NCDF) by completing an NCDF Complaint Form online, or by calling 866-720-5721.
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, so there is no requirement to file a Form 14039, Identity Theft Affidavit.
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.
The IRS is recommending taxpayers who were victims of an unemployment benefits identity theft scheme to consider opting into the IRS Identity Protection PIN program and get an IP PIN. This is a six-digit number that helps prevent thieves from filing federal tax returns in the names of identity theft victims.
If you want to pot into the voluntary program open to any taxpayer who can verify his or her identity, you can see details and apply for it at Get an IP PIN.