Unemployment fraud exploded in 2020 after the federal government created new programs for people previously ineligible for benefits, relaxed some identity authentication and verification processes, and added $600 to all weekly benefits for four months.
That bait proved irresistible for identity thieves. They used stolen or leaked identity information to file for unemployment benefits under the names of real people or to access legitimate claims in order to send the payments to themselves instead.
Some people have already learned they were victims in this scheme, but others won’t know until they get a letter from the Internal Revenue Service demanding income tax on unreported unemployment benefits they never filed for or received.
“Historically we receive one or two calls a month about unemployment identity theft,” says Eva Velasquez, chief executive officer of the nonprofit Identity Theft Resource Center. “We had over 1,000 calls [in 2020 and January 2021].”
Most states have been hit with this fraud, but none more than California. Its Employment Development Department said that between March 2020 and mid-January of this year, it paid $11 billion in fraudulent claims, or 9.7 percent of the total, and that an additional 17 percent of payments could be fraudulent.
How to Know if You are a Victim of Unemployment Fraud
If your employer was listed on the fraudulent claim, they may have asked why you were filing for unemployment when you still had a job. Catching it early like this can help limit the damage, as employers can report the fraud to the unemployment department and stop payments on the fraudulent claim.
If your address was used on the claim, you may have been mailed Form 1099-G for unemployment benefits you never received. State agencies are supposed to send this form by Jan. 31 to anyone who got unemployment benefits, but the IRS gave the California EDD through the end of February because of the high volume of claims filed in 2020. The form also goes to the IRS, and it shows the total amount of benefits received. Unemployment income must be reported. It is taxable on federal returns, and some states (excluding California) also tax it.