Identity theft and fraud are not new. According to Javelin Strategy & Research, financial losses due to identity fraud reached $16.9 billion in 2019. It impacted 5.1 percent of consumers. Fraudsters have many tactics to steal identities and are always on the lookout for new scams.
The CARES Act of March 2020 allowed more workers to claim unemployment benefits due to the pandemic including those who were typically not eligible for unemployment and those whose benefits expired. This also created unprecedented opportunities for criminals to use stolen identities including those of nannies and other household employees.
Criminals likely obtained personal information during previous data breaches – like those involving banks, insurance companies, and large employers. The Equifax security breach of 2017 alone exposed the personal information of 147 million people. Scammers use these stolen identities to file fraudulent claims and illegally collect benefits in the names of individuals who are likely still working.
Those who are employed and not collecting unemployment are often targeted because they are less likely to have an active claim that would prevent the criminals from filing for fraudulent benefits.
How widespread is the problem? In New York, for example, the state’s labor agency has referred more unemployment fraud cases to federal prosecutors over the past 10 months than in the past decade stopping more than 42,200 fraudulent unemployment benefit claims since the pandemic started last March.
Here is what families and their employees need to know about unemployment fraud and how to respond if they may be victims. This is important information to share with your employee.
For your employee: what to do if a fraudulent unemployment claim is made
State labor agencies will send official notices about unemployment benefits – often called monetary determination letters – to workers who have filed claims.
If your employee has received this type of communication but did not apply for unemployment, they should:
- Immediately contact the state labor agency. Reporting fraud online will save time and be easier for the agency to process.
- Retain any confirmation or case number.
- Keep a record of who they spoke with and when.
- Follow any additional steps provided by the agency.
- Inform you of the fraudulent unemployment claim made in their name.
They also can report the fraud to the U.S. Department of Justice’s National Center for Disaster Fraud (NCDF) by completing an NCDF Complaint Form or by calling (866) 720-5721.
While your employee may not be liable for fraudulent unemployment benefits paid in their name, it is important they report this criminal activity as soon as they are aware as there could be tax repercussions.
Individuals who collect unemployment benefits receive Form 1099-G to include with their personal tax returns. Unemployment benefits are considered taxable income. If your employee is not aware of or delays reporting the fraud, Form 1099-G could be generated in their name showing taxes due on the benefits they never claimed or received. If that happens, they should contact their state labor agency for a corrected form showing that they did not receive these benefits.
If they are unable to obtain a revised Form 1099-G, they should still file an accurate tax return, reporting only the income they received.
Read more about IRS guidance on identity theft involving unemployment benefits.
This just creates an additional nuisance for your employee when they go to file their taxes. Prompt attention now can help mitigate any troubles later.
For families: when a fraudulent unemployment claim is made
You will also receive a letter indicating that a former worker applied for unemployment benefits. This is typical as employers can verify or dispute an ex-employee’s claim.
However, if you receive a letter about a current employee, an individual who never worked for you, or someone you know who is still in the workforce, then fraud may be taking place.
You should immediately protest the claim with your state labor agency. Instructions on how to do this will be included with the notification. Also, inform the employee whose name was used to make the claim so they can take make sure their identity is safe.
With both parties – employer and employee – reporting the fraud, a record is created that should help your employee avoid taxation if they receive Form 1099-G.
Reporting identity theft
Along with reporting the unemployment fraud, your employee should take further steps to protect themselves. They are likely the victim of identity theft and should:
- Change passwords, logins, and pins for online accounts (especially for financial websites).
- Place a freeze on their credit report or a fraud alert with the three credit bureaus (Experian, TransUnion, and Equifax).
- Get a free credit report from annualcreditreport.com.
- Report the identity theft to the Federal Trade Commission (FTC).
- File a report with their local police department if they wish.
- Report a compromised Social Security number.
A credit freeze is free and restricts access to a credit report, which can make it more difficult for identity thieves to open new accounts in that individual’s name.
A fraud alert is also free and is in place for one year. It will make it harder for someone to open new accounts under that individual’s name. When there is a fraud alert on a credit report, a business must verify the individual’s identity before it issues new credit in that person’s name. You can renew the fraud alert after one year.
You only need to contact one of three credit bureaus when placing a fraud alert. That company must inform the other two firms.
Contact information for credit bureaus
TransUnion: (888) 909-8872
Experian: (888) 397-3742
Equifax: (800) 685-1111
When reviewing credit reports, check for any unrecognized account or transaction. Your employee should closely monitor their bank statements, other financial accounts, utility bills, credit card statements, medical bills, and medical insurance statements.
IdentityTheft.gov from the FTC can help your employee report and recover from identity theft.
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