As tax forms are mailed out, new cases of unemployment fraud could come to light.
In January of each year, employees start receiving the various forms needed to file their income tax returns for the previous year. One of the forms that they could receive is an IRS Form 1099-G showing miscellaneous income from unemployment or state and local income tax refunds. If your employees filed for benefits, this is to be expected as unemployment benefits are taxable income in most states. However, in some cases, this could be the first indication that a fraudulent claim has been filed using stolen personal information. What should you and your employee do if they receive this form and they did not file for benefits?
What is a Form 1099-G?
It is important to understand what a Form 1099-G is and when it is issued. An IRS Form 1099-G is issued when federal, state and local governments pay someone any of the following:
• Unemployment compensation
• State or local income tax refunds, credits or offsets
• Re-employment trade adjustment assistance payments
• Taxable grants
• Agricultural payments
Unemployment benefits and state and local income tax refunds are the most common reasons an employee would receive a 1099-G. By law, these forms are sent to employees by January 31. After an employee files their tax returns, they could receive correspondence from the IRS regarding unreported UI benefits or a notice of State or Federal tax offset. This could be another indication that a fraudulent unemployment claim may have been filed.
Who will receive a Form 1099-G?
Anyone who filed a valid claim for unemployment benefits in the past year will receive a Form 1099-G. If an individual had a state or local income tax refund in the previous year, they will also receive a Form 1099-G. Where employees need to be vigilant is in the case where they did not file for unemployment in last year and they receive a Form 1099-G showing Unemployment payments in Box 1. Most State Workforce Agencies will suppress a Form 1099-G for Unemployment when they have been alerted of a potential Identity Theft case.
| Situation | 1099-G NOT Issued | 1099-G Issued |
|
Identity Theft victim - Payments received were returned to state |
X |
|
|
Identity Theft victim - No payments made by state |
X |
|
|
Identity Theft victim - Claim opened and paid but victim did not get the money and can’t return the funds |
|
X |
What should my employee do if they get a 1099-G for fraudulent benefits?
If the employee receives a 1099-G despite never having made a claim for unemployment benefits, they should take the follow steps.
- Report the fraud to the State Workforce Agency and their HR department
- It is more efficient and streamlined to file a fraud report online whenever possible. A complete listing of the contact information by state can be found here (https://support.thomas-and-company.com/hc/en-us/articles/360059003794)
- The employee should also alert their HR Department so this potential fraud case can be reported to Thomas & Company. Once reported to us, if Thomas & Company has not previously reported the fraud to the State Workforce Agency we will do so and we will monitor the case to protect your account from fraudulent charges.
- File a report with both the FTC and the IRS
- Employees should report the identity theft to the FTC at https://identitytheft.gov. The FTC site also provides the employee with a personalized recovery plan based on the information that they provide. With an account, the FTC can walk the employee through each step of the recovery process, update the plan as needed and track their progress as well as provide pre-filled forms and letters that may be needed,
- Employees should also report the identity theft to the IRS to help avoid paying taxes on the 1099-G income. This can be done via phone at 1-800-908-4490 or by filing an IRS Form 14039 – Identity Theft Affidavit (https://irs.gov/pub/irs-pdf/f14039.pdf)
- Contact their bank, credit card companies and all three credit reporting agencies (Experian, TransUnion and Equifax) to place a freeze on their credit reports to further protect their identity during the investigation.
My employee notified the state of a potential fraud claim. When will they hear back from the state?
The State Workforce Agencies are working diligently through the fraud cases that are reported. Due to the complexity of these cases and the volume of fraudulent claims, it can take anywhere from a few weeks to several months to resolve a fraud case. Thomas & Company does our best to monitor these cases and we will provide any updates that are received. However, to ensure the confidentiality and integrity of any case, the State Workforce Agencies do not provide status updates to fraud reports unless court-ordered or when required by law.
Your employees should document all confirmation and case numbers provided, along with the name of the individuals that they speak with regarding their case.
What if my employee has more questions?
Thomas & Company has put together a Frequently Asked Questions resource that your employees can use to get more information. This resource can be found at https://support.thomas-and-company.com/hc/en-us/sections/1500000102501-EMPLOYEE-QUESTIONS.
The IRS provides more details on Identity Theft warning signs and ways to protect their Personal Identifiable Information (PII) at https://irs.gov/newsroom/taxpayer-guide-to-identity-theft.
Additionally, the IRS will never:
• Initiate contact with a taxpayer by email, text, or Social Media to request personal or financial information.
• Call with threats of lawsuits or arrest.
• Call, email, or text to request a taxpayer’s Identity Protection PIN.
The employee should consult with their tax professional for any additional questions relating to the impact to their annual income tax returns.