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Unemployment Insurance Claims, Identity Theft and State Taxes—Why You Need to Protect Yourself

In 2020, the COVID-19 coronavirus pandemic strongly affected the U.S. economy and the personal livelihoods of millions of Americans. According to the U.S. government's Bureau of Labor statistics, the unemployment rate in April 2020 increased by 10.3 percentage points to 14.7 percent. This is the highest rate and the largest over-the-month increase in the history of the data going back to January 1948. From March to mid-October 2020, the total number of claims for unemployment insurance was estimated to be approximately 65 million, a new record, and the claims continued to accumulate through December 2020.

2020 unemployment and unemployment insurance claims

A record number of millions of unemployment insurance claims ultimately result in billions of dollars of unemployment insurance payments by states, who manage unemployment programs. When that amount of money is available, there will be fraudsters trying to cheat state unemployment systems and collect money they are not due. In January 2021, it was reported by the Associated Press news service that California Labor Secretary Julie Su told reporters in a conference call on state unemployment numbers that just in her state $11.4 billion had been confirmed as fraudulent unemployment claims. Fraudulent unemployment insurance claims often come from either a legitimate person filing a false claim, or a stolen identity used by a crook to file a claim under another person’s name and Social Security number.

More than 10 years ago, in the first-ever Delta Community blog, we warned about the dangers of identity theft and the need to protect yourself from identity imposters. As the use of mobile payments has increased, along with a huge surge in online shopping, the need to protect yourself has never been greater.

Identity theft and state taxes

Along with the terrible problems of stolen money, damaged credit, and harm to their financial reputation, now there is another potential problem for identity theft victims. Because of the huge number of unemployment insurance claims last year, which resulted in a huge increase in claims fraud using stolen identities, now, in 2021, identity theft victims may face the prospect of their state telling them that they owe significantly more state taxes. Here’s how that could happen.

States send out U.S. Internal Revenue Service 1099-G forms reporting taxable income early in the new year to taxpayers, and under federal law unemployment benefits are considered taxable income. The states must match up their 1099-G forms with taxpayers who have reported identity theft and with confirmed incidences of fraudulent unemployment insurance claims. If states don’t have those identity theft reports, or if they are behind in matching 1099-G forms with reports, then they may tell some taxpayers that they owe taxes on potentially thousands of dollars of unemployment payments that they did not receive, but instead were paid to an identity thief impersonating them.

This state tax complication could just compound the problems of innocent identity theft victims, who will have to go to state tax authorities and work out what their correct taxes are for 2020.

Managing identity theft concerns

If you suspect that someone may have stolen your identity and is passing themselves off as you, then visit IdentityTheft.gov. That website is the U.S. government's one-stop resource for assisting identity theft victims. The site provides streamlined checklists and sample letters to guide you step by step through the identity recovery process. The U.S. Federal Trade Commission also has prevention tips and free resources on identity theft worth checking out. If you think you may already be a victim of identity theft, please contact our Member Care Center via our toll-free number at 800-544-3328 to tell us about your situation.

Other financial information resources from Delta Community

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