Even before the Coronavirus pandemic, unemployment benefit scams were already a major problem costing the states and federal government billions of dollars each year. Part of the problem is that the federal government requires the states to pay claims within a few weeks even if the employer has not responded to confirm that the applicant for unemployment benefits is indeed eligible for those benefits. As with so many identity theft crimes, this one starts with the theft of someone’s Social Security number. Armed with that ammunition, the identity thief then applies on line for unemployment benefits, which are often paid before the legitimacy of the claim is confirmed. The payments are generally made by debit cards or direct deposit into bank accounts controlled by the identity thieves which make this crime simple to accomplish.
Many states do not have the proper controls in place to properly screen applications and other states may be not be as stringent in following their own rules in an effort to speed up the sending of funds to needy applicants for benefits. Last May I told you about a private memorandum from the Secret Service indicates that a sophisticated fraud ring based in Nigeria was using stolen Social Security numbers and other personal information to file phony applications for unemployment benefits in large numbers.
Victims whose names and Social Security numbers were used to file fraudulent unemployment compensation claims generally became aware of the problem when they would receive a letter from their state’s unemployment office informing them that their application for benefits had been approved. These victims then would generally contact their state ‘s unemployment office, inform them that this was a scam and get their records there corrected. Or so they thought. Unemployment compensation is taxable income and states paying unemployment compensation payments are required to issue 1099-G forms indicating the funds paid and send those forms to both the IRS and the unemployment claimant. Unfortunately, many state offices have not corrected their records and sent these notices to the people whose identities were stolen and used by the identity thieves to steal unemployment payments. Unfortunately, the IRS also received these faulty 1099 – G forms. The IRS initially advised people receiving these 1099-G forms for funds they did not get to contact their state unemployment offices to get a corrected form. However, I wouldn’t hold my breath waiting for the state unemployment offices to correct the 1099-G forms before the extended May 17th tax filing deadline.
Fortunately, as a part of the new American Rescue Plan which became law earlier this month, unemployment benefits up to $10,200 for individuals and $20,400 for married couples filing jointly will not be taxable if your modified adjusted gross income is less than $150,000.
If you are still employed, but have received letters or other communications from your state’s unemployment office, your identity may have been used in this scam and you should report this to your state’s unemployment office right away. As for dealing with your 2020 income tax return, the best way to protect yourself from income tax identity theft is to file your return as soon as possible. If you were a victim of this scam you no longer have to include the funds indicated on the 1099-G issued by your state on your federal income tax return. If you already filed and included the funds on your income tax return, you do not need to file an amended return. According to the IRS, “any resulting overpayment of tax will be either refunded or applied to other outstanding taxes owed.”
Additionally, if you have been a victim of this scam, your Social Security number is in the hands of a criminal. It may be used for other criminal purposes so you should get a copy of your credit report from each of the three credit reporting agencies to look for any irregularities and you should freeze your credit if you have not already done so.
Here is the link to use to get a free copy of your credit reports https://www.annualcreditreport.com/index.action
To get the maximum protection from identity theft, it is important to freeze your credit at each of the three major credit reporting agencies. Here are links to each of them with instructions about how to get a credit freeze:
Once you have frozen your credit, be sure to keep the PIN and information on how to unfreeze your credit report in a safe place.
I also urge you to regularly go to the website https://haveibeenpwned.com/ where you can insert your email address and find what data breaches may have compromised your information.
For those of you receiving the Scam of the day through an email, I just want to remind you that if you want to see the ever increasing list of Coronavirus scams go to the first page of the http://www.scamicide.com website and click on the tab at the top of the page that indicates “Coronavirus Scams.” Scamicide has been cited by the New York Times as one of three top sources for information about Coronavirus related scams.
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