Identity Theft and Unemployment Benefits

Because of the pandemic, millions of Americans lost jobs permanently or temporarily in 2020 and received unemployment benefits issued by state agencies.

However, in some cases, criminals sought to exploit the situation, filing for fraudulent unemployment benefits using stolen identities.

Because unemployment benefits are taxable income, states issue Forms 1099-G, Certain Government Payments, to recipients and to the IRS to report the amount of taxable compensation received and any withholding. Box 1 on the form shows "Unemployment Compensation."

Report Fraud to the States

Taxpayers who received a Form 1099-G for 2020 unemployment compensation that they did not receive should take the following steps:

  • Contact issuing state agency to report fraud. The U.S. Department of Labor maintains a list of state contact information to report unemployment compensation fraud.
  • Ask state agency to issue a corrected 1099-G. The state will need time to investigate the fraud complaint and make any correction.
  • File an accurate federal tax return reporting only income received, even if a corrected 1099-G has not yet been received.
  • Follow Federal Trade Commission recommendations for identity theft:
    • Review free credit reports for signs of additional fraud from the credit bureaus;
    • Consider a credit freeze or credit fraud alert through the credit bureaus;
  • File an identity theft complaint with the U.S. Department of Justice's National Center for Disaster Fraud (NCDF) by completing an NCDF Complaint Form online, or by calling 866-720-5721.

Tax Refunds Unaffected; Filing IRS Identity Theft Affidavit Unnecessary

There should be no effect on the processing of tax returns or processing tax refunds for those taxpayers whose identities were fraudulently used to claim state-issued unemployment benefits.

There is no requirement to file a Form 14039, Identity Theft Affidavit. A Form 14039 should be filed only if the taxpayers' e-filed tax return is rejected because a duplicate return with their Social Security number is already on file or if the IRS instructs them to file a Form 14039.

Taxpayers who were victims of an unemployment benefits identity theft scheme should consider opting into the IRS Identity Protection PIN program. An IP PIN is a six-digit number that helps prevent thieves from filing federal tax returns in the names of identity theft victims.

The IP PIN is a voluntary program open to any taxpayer who can verify his or her identity. See more details at Get an IP PIN.