Tax Season is Here: ID Theft & What to Watch For
In a winter of scams, criminals are trying lots of ways to pry cash out of honest taxpayers. They may pretend to work for the Internal Revenue Service and fraudulently obtain personal data. They may falsely claim that you owe money to the government. They may try to capture your tax return. They may be “ghost” tax preparers with fake credentials. Or they may attempt to obtain a refund – in your name, a scheme that can be identified by comprehensive fraud monitoring that includes the opening of phony depository accounts.
Older adults are often the targets of such financial fraud. And now, with tax season on the horizon, we are hearing about a new scheme that is causing headaches for unfortunate taxpayers: They are receiving tax notices for unemployment benefits they never collected.
The problem is rooted in the economic downturn brought by the COVID-19 pandemic. Identity thieves filed phony claims for unemployment benefits, using stolen personal data. In many cases, crooks got the money, and potentially eligible individuals never saw a penny. Now, state labor agencies are sending out 1099-G forms telling people they owe thousands of dollars of federal taxes for unemployment benefits they never received. (Jobless benefits are counted as taxable income by the federal government; the majority of states also tax the benefits, although state rules vary.)
According to the Federal Trade Commission, fraud involving government benefits skyrocketed last year, with almost 400,000 reports – compared to just 12,900 in 2019. In California alone, criminals captured more than $11 billion in unemployment benefits – about 10 percent of the state’s total.
Tax bills for 2020 are now bringing this matter to a head. The IRS wants anyone who received a 1099-G form listing benefits they never received to inform their state labor agency and to request a corrected 1099-G. Doing so may save you from an excessive tax payment and further problems from this scam.