What to do if you get a tax form for unemployment benefits that you never received
Imagine seeing a tax form appear in the mail indicating that you must claim additional taxable income of $ 5,000 or more on your federal income tax return. And you’ve never seen a dime of that money?
But now are you supposed to pay taxes on it? Wow, what is it?
We envision a shocking tax headache for millions of potential identity theft victims nationwide. They really don’t owe any extra taxes, but they’ll spend more time trying to clean up a mess sparked by widespread bogus unemployment claims in 2020 in order to file their federal 1040 tax return.
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Robert Pennock was surprised to see a 1099-G appear that brings in $ 5,772 in taxable income. This is money, allegedly, that he received from state unemployment benefits through the Michigan Unemployment Insurance Agency in 2020.
If he received unemployment benefits, it would be taxable income. But he was not made redundant during the pandemic. He did not face any leave. He never applied for and never received state unemployment benefits.
Pennock works as a reading specialist for Hulsing Elementary School in Canton, Michigan. He teaches students from kindergarten to fifth grade.
He had some clues over the summer that something was going on. The Plymouth-Canton Community Schools Human Resources Office noticed unemployment claims being filed in its name in June.
He confirmed to HR that he had not filed for unemployment. He is thankful that his employer is trying to help him solve the problem.
He said he immediately went to the Michigan UIA website and filed fraud and identity theft complaints.
It appeared to him, he said, that these jobless claims were not paid as he received letters in the mail that his jobless claim was denied for various reasons.
“And I thought that would be the end of it,” said Pennock, 55, who lives in Plymouth Township.
This was not the case. He received the 1099 in the mail around January 22.
Pennock, whose wife Pamela usually prepares their tax returns using tax software, finds out what to do next.
Pennock’s mother passed away at the age of 89 last week, the same week he had the disturbing 1099. He had only been able to visit him once last year in Ohio. during the pandemic.
“My mom used to say that everything will be fine in the wash,” he told me on Tuesday. “And I’m sure it will.”
Thursday morning, he had more hope that his mother’s words could come true.
“Good news,” Pennock emailed me. “They send in a corrected 1099 and directed me to Form 6349, available on the UIA website, which I must complete and return. The form is titled “Declaration of Identity Theft”.
He is not angry with the National Unemployment Insurance Agency because he knows how overwhelmed the people who work there must be.
“My anger is against people who profit and steal money from people.”
Massive unemployment fraud sweeps the country
Across the country, professional criminal networks used stolen credentials to file fraudulent unemployment claims in 2020.
The problem is, if your information was used to file bogus unemployment claims, the state could soon issue you with a Form 1099-G, Certain Government Payments, issued in your name. Unemployment benefits must be included in taxable income shown on Schedule 1, line 7 of a 1040 return.
Experts say you can’t just ignore this 1099 because it is income that has already been submitted to the Internal Revenue Service. The incorrect 1099 can create additional headaches and delays when it comes to getting a tax refund.
Ideally, you want the state Unemployment Insurance Agency to issue you with a corrected 1099-G for both you and the Internal Revenue Service. The IRS notes in its own publications that you want to contact the person who issued the 1099 if it is not correct.
If you still haven’t received the corrected Form 1099 by the end of February, the IRS said, you can call the IRS at 800-829-1040 for assistance.
But, realistically, how long could it take? Will you receive a corrected form or response from the IRS in time to meet the April 15 tax filing deadline? How long will you have to wait for a tax refund owed to you?
Remember, the IRS won’t even start processing tax returns until February 12. That’s just over two weeks later than last year.
The IRS website has a guide on identity theft. See IRS.gov/identitytheft.
Local retiree wonders what to do with 1099
“Now I have a 1099 that says it’s for $ 4,880,” said Karol Settergren, a retired high school counselor.
Taking a close look at the 1099, she said, it shows withholding taxes of $ 488 for federal income tax and $ 270.40 for state.
“There’s my social security number here,” she said.
“Now I’m just concerned about what happens when I go to file my taxes. “
Settergren, 73, did not apply for unemployment benefits in 2020.
She recalls receiving documents over the summer that indicated that she had been denied her claim for unemployment benefits because she had not provided enough identification. She did not keep this letter.
Again, however, she did not expect a problem since she received information that the request was denied.
“It’s just another thing to deal with,” she said. “It looks like everything is wrong in this year of COVID-19. “
Last year, a full-scale impostor hit state unemployment systems across the country. Many times the crooks have filed claims for people who have not lost their jobs, such as teachers, retirees and even small business owners.
California officials confirmed on Monday that the state paid more than $ 11 billion in fraud-related unemployment claims during the pandemic, according to The Hill.
Scammers have found bogus unemployment claims appealing and a way to steal generous unemployment benefits of up to $ 1,000 a week offered in many states at the start of the pandemic.
In March, Congress passed the $ 2 trillion Aid, Relief, and Economic Security Act, or CARES, which provided an additional $ 600 federal unemployment benefit and offered benefits to workers who were not normally not eligible for state benefits under the Pandemic Unemployment Assistance Program.
The crooks have been very successful. It has been estimated that at least $ 36 billion could have been defrauded from the system nationwide, according to the Office of the Inspector General of the Ministry of Labor.
Tax professionals are scrambling
Your first step when you receive one of these letters should be to contact the issuer of the 1099-G, usually the state unemployment office, and notify them of the fraud and request a corrected 1099-G. , according to Mark Luscombe, chief analyst for Wolters Kluwer Tax & Accounting.
Luscombe said you didn’t want to include the 1099-G amount on your tax return if it was a fraud.
“I hope you can ask the state employment agency to correct the 1099-G and file a corrected version with the IRS, but if not, attach to your tax return a statement that the 1099-G was a response to a fraudulent claim that you are. trying to be corrected and you didn’t apply for and received no unemployment benefit, ”Luscombe said.
Yes, expect more headaches too.
“State employment offices have been inundated with valid unemployment benefit claims as well as fraudulent claims, so their response may take some time,” Luscombe said.
He wouldn’t be surprised if it could take several months for some to resolve these issues.
The State of Michigan warns of potential delays in its letter: “Please be patient. Widespread impostor fraud and identity theft across the country require the UIA to individually review each claim of suspected fraud. If you have already provided information to the UIA, it is not necessary to resubmit it, unless the UIA asks you to do so.
Michigan UIA to investigate identity theft report. “Once identity theft is confirmed, the UIA will issue a corrected 1099-G to you and the Internal Revenue Service,” according to the state’s letter.
States across the country are issuing these 1099s to victims of fraud and alerting victims to what to do next.
Washington State, for example, notes on its website: “When criminals fraudulently claim benefits on behalf of someone else, we must investigate and confirm the fraud before we can update the IRS. “
Colorado has an online form to report an invalid 1099 for its identity theft victims, as does Oregon.
Luscombe said victims of identity theft can expect to be asked for certain documents, such as verifying that you are still employed by your employer.
You also want to document any steps you took to correct the fraud and the names and dates involved when you reported the identity theft. You may want to contact your local police department to document the fraud.
“If you have a valid claim for unemployment benefits in addition to the fraudulent claim that was filed, the fraud process could also delay your claim for valid benefits,” Luscombe said.
You would want proof that you are a victim of identity theft and that the benefits should not be taxed because a scammer received the money, not you.
The bizarre 1099 means that you must also try to limit future identity theft.
Victims of identity theft are encouraged to file a report with the Federal Trade Commission, which monitors unemployment benefit fraud nationwide. Go to IdentityTheft.gov. A special tab in the right corner directs you to claims regarding unemployment benefit identity theft.
Take the time to check your free credit report at AnnualCreditReport.com to see if there is any evidence of other fraudulent activity, possibly credit cards opened in your name by crooks.
The IRS notes that you can place a one-year free fraud alert on your credit reports by contacting one of the three national credit reporting companies online or through their toll-free numbers. The office you contact should notify the other two. Call Equifax at 800-525-6285. Experiential: 888-397-3742. And TransUnion: 800-680-7289.
Experts say you could request a fraud alert or credit freeze from all three credit bureaus. If you opt for a credit freeze, you will need to lift the freeze if you need to take out a loan or apply for credit yourself.
Whatever you do, don’t just throw that 1099-G in the trash. It is better to try to fix this problem as soon as possible.
Susan Tompor is a personal finance columnist for the Detroit Free Press.