Be On the Lookout for Identity Theft Involving Unemployment Benefits

Millions of taxpayers were affected by the pandemic through job loss or reduced work hours. Some taxpayers applied for and received unemployment compensation from their state.

Scammers also took advantage of the pandemic by filing fraudulent claims for unemployment compensation using stolen personal information of individuals who had not filed claims. Payments made as a result of these fraudulent claims went to the identity thieves.

By law, unemployment benefits are taxable. States issue Form 1099-G, which shows the total unemployment benefit amount paid to the taxpayer in the calendar year. States should not issue Form 1099-G to taxpayers they know to be victims of identity theft involving unemployment compensation.

Taxpayers whose identities may have been used by thieves to steal unemployment benefits and who receive an incorrect Form 1099-G should contact the issuing state agency to request a revised form. If they’re unable to get a timely, corrected form from states, the IRS urges such taxpayers to file an accurate tax return claiming only the income they actually received. They should also save any documentation they have regarding their attempts to receive a corrected form from their state agency.

Taxpayers do NOT need to file a Form 14039, Identity Theft Affidavit, with the IRS about an incorrect Form 1099-G. Form 14039 should only be filed if the taxpayer’s e-filed return is rejected because a return using the same Social Security number already has been filed.

Tips to Help Taxpayers Spot and Avoid Tax Scams

Tax season is also busy season for savvy criminals. Here are some tips to help people recognize and avoid tax-related scams.

Email phishing scams: The IRS does not initiate contact with taxpayers by email to request personal or financial information. Generally, the IRS first mails a paper bill to a person who owes taxes. In some special situations, the IRS will call or come to a home or business. Taxpayers should not open any attachments, click on any links, reply to the sender, or take any other actions that could put them at risk. Taxpayers should report the phishing scam to the IRS at phishing@irs.gov

Phone scams: The IRS generally first mails a bill to a taxpayer who owes taxes. There are specific ways to pay taxes. The IRS and its authorized private collection agencies:

● Will NOT leave pre-recorded, urgent, or threatening messages on an answering system. ● Will NOT threaten to immediately bring in local police or other law enforcement groups to arrest the taxpayer for not paying, deport them, or revoke their licenses. ● Will NOT call to demand immediate payment with a prepaid debit card, gift card, or wire transfer. ● Will NOT ask for checks to third parties. ● Will NOT demand payment without giving the taxpayer an opportunity to question or appeal the amount owed.

Criminals can fake or spoof caller ID numbers to appear to be anywhere in the country. Scammers can even spoof an IRS office phone number or the numbers of various local, state, federal or tribal government agencies.

If a taxpayer receives a scam phone call, they should not give out any information and hang up immediately. Report the caller ID and callback number to the IRS by sending it to phishing@irs.gov with "IRS Phone Scam" in the subject line. The taxpayer should report the call to the Federal Trade Commission as well.

Unemployment Benefits are Taxable Income

Unemployment benefits are taxable income and must be reported on your federal income tax return. With millions of people receiving unemployment compensation in 2020 due to the pandemic, many people may wind up with smaller refunds or even taxes owed if taxes were not withheld from their unemployment benefits.

Taxpayers can have tax withheld from their benefits. This will help them to avoid owing taxes on this income when they file their federal income tax return next year. Withholding taxes from unemployment benefits is voluntary.

Taxpayers who receive unemployment benefits will receive Form 1099-G. This form shows how much was paid to the taxpayer during the year (box 1) and how much money was withheld for federal income tax (box 4).