Unemployment fraud is harming those with and without jobs. Here’s what to do if you’re a victim
The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .
First, there were delays. Then came overpayments. Some Americans got kicked off. Others are still waiting for their money to arrive.
Unemployment benefits have been a lifeline for the tens of millions of Americans who lost their job during the coronavirus pandemic, but the process has been plagued with roadblocks and hold ups as Americans attempt to collect their checks.
The latest wrinkle? Billions of dollars worth of mistaken unemployment payments have been paid out throughout the coronavirus pandemic. For some Americans, that’s been a story of scammers claiming benefits in their name. Another swath — though somewhat rare — are seeing their checks go to the wrong people.
Experts say all of these issues could be related to unemployment fraud (which has surged during the pandemic-induced unemployment crisis). Others might’ve made mistakes on an application or possibly been squeezed out after their state unemployment office made an oversight. That all happened as agencies were inundated with more than 75 million claims in 2020 alone, seven times the volume of submissions in 2019.
If you think you’ve been affected, taking action is going to be important regardless of the error’s cause, both for tax purposes and your longer-term financial wellbeing. Here’s what you need to know about the issue and how you should go about taking care of it.
Even before the pandemic, states have had problems with making wrong unemployment payments
Even in normal times, around 8-12 percent of all unemployment dollars are spent on erroneous payments, according to Wayne Vroman, an Urban Institute associate and labor economist who specializes in unemployment insurance (UI). Some reasons why include state agencies mistaking claimants’ eligibility or their employer providing mistaken information, Vroman says.
That figure is also based on a state’s regular jobless program, meaning the number could now be much higher, especially after the CARES Act created three new joblessness programs: the Pandemic Unemployment Assistance (PUA), the Pandemic Emergency Unemployment Compensation (PEUC) and the Federal Pandemic Unemployment Compensation (FPUC).
In updated figures provided on Feb. 5 by the Office of the Inspector General at the Department of Labor, at least $63 billion of the estimated $630 billion in UI program funds enacted through the CARES Act and subsequent legislation are estimated to have been paid improperly. A significant portion of those wrong payments are attributable to fraud, the OIG said. The unemployment program most susceptible to wrongful payments is PUA, given that it relies on claimant self-certification without evidence of eligibility and wages, according to the report.
At the heart of the issue is how states hadn’t yet finished building the bridge before Americans started using it. States were pressured to get all unemployment programs, both old and new, up and running at a time when more Americans were filing for jobless benefits than ever before. All of the key players involved with getting those new programs online “have less experience than they do with regular UI,” Vroman says.
All the while, they were contending with staff and technological resources that would’ve been seen as limited even during typical times. Fraudsters, meanwhile, have largely flown under the radar, blending in with the millions of other applicants.
“We really need to figure out how we are implementing cross-referencing on the tech side,” says Nicole Marquez, director of social insurance at the National Employment Law Project (NELP). “It’s a matter of removing the potential for the misuse of personal information in the first place.”
Unemployment fraud can cost some states millions of dollars
Across the country, erroneous payments have manifested themselves in different ways. A 25-year-old from North Carolina reportedly saw her checks go to the wrong person all because she put the wrong bank account number when applying for benefits. In Illinois, for instance, state officials say they’ve counted 1 million fraudulent unemployment claims where a scammer has succeeded at gaining benefits in someone else’s name.
One of those Illinois residents is Laurie Dotson, 58. She received a phone call in mid-September from her employer’s payroll office that the Illinois Department of Employment Security (IDES) had contacted them about certifying her recent application for unemployment benefits. She was still employed.
She thought it would be the end of it once she submitted a fraud-reporting form online, but almost a month later, she received an award letter and a debit card. By November, she had a notice on her doorstep saying she owed the state $968 dollars back. IDES didn’t call her back for a week, but even then, the story wasn’t over. After getting her unexpected bill taken care of, Dotson got another notice in the mail around December: Someone had filed for unemployment benefits in her name a second time.
“It’s been a nightmare,” she says. “I keep thinking any day now that I’ll be getting a letter saying that I owe money again. Who has my information, and what else can they do with it?”
Problems like these often arrive when a fraudster gets a hold of another’s Social Security number, Vroman says. Many fraudulent unemployment claims have been traced back to data breaches, according to the FBI.
Anne Paxton, a staff attorney at the Washington state-based Unemployment Law Project, knows these issues all too well. One of the earliest outbreak sites, Washington was targeted last spring by a sophisticated fraud ring that prosecutors traced back to Nigeria. A December 2020 report from the Office of the Washington State Auditor suggested it had resulted in a more than $600 million loss.
The watchdog report faulted the Washington state’s Employment Security Department after it didn’t catch eyebrow-raising payments to out-of-state banks and suspicious email accounts on applications, according to a May 2020 Seattle Times report, even after having received $44 million for a software upgrade that could help prevent fraud.
“If they’re posing as the claimant who’s being defrauded, and for some reason the system believes that the imposter is the real person, it’s easy because the wage and hour information will be there,” Paxton says.
But the state’s system wasn’t set up to handle the massive amount of claims it would receive, Paxton says. If it’s any indication, Paxton estimates that her office with just 13 staff members received thousands of calls since the pandemic began, only half of which they were able to return.
“There are tears of joy in a lot of cases because they’re talking to a human even though we don’t know their case,” Paxton says. “It’s not like the computer started smoking with the overload, but the effects of this overload were that a lot of things went by the wayside. They couldn’t get benefits. They couldn’t get their questions answered. The IT system kept sending them notices that were inexplicable or contradictory. … You see this snowballing effect of the sheer numbers of people who applied in Washington and other states.”
What to do if you think you’ve been the victim of an erroneous payment
Many states have learned from these fraudulent experiences and instituted new checks and verification procedures, Paxton says. However, with jobless claims still historically elevated, they might not be able to fix every issue.
1. Report the fraud to your state’s unemployment agency, law enforcement, credit bureaus, banks and the IRS
Each state does it differently, but your specific unemployment agency most likely has a fraud-reporting form that you can find online. Others might have a hotline you can call. Check with your individual office to see what reporting procedure it follows.
Be sure to fill it out as soon as you are aware of the problem, or even if you suspect that you might be a victim. Keep copies for your records. While no one wants to dwell on a letter from their state, it’s better to have done everything in your power to correct the issue, rather than ignore it and hope it gets resolved on its own.
The FBI also recommends reporting the fraud to law enforcement, the IRS and credit agencies. That includes putting a fraud report on your credit records by contacting the three major credit bureaus (TransUnion, Experian and Equifax).
Victims should also consider reporting fraudulent or any suspicious activities to the Internet Crime Complaint Center, according to the FBI. You may consult identitytheft.gov for help in reporting and recovering from identity theft.
Generally speaking, victims of identity theft might also want to regularly check their credit report and alert the banks and financial institutions they regularly work with. If you see fraudulent information, you might want to consider a credit freeze, which completely locks down credit report agencies from releasing your information to new creditors.
2. File your taxes as you normally would
If a fraudster has been collecting unemployment benefits in your name, you might receive a mistaken 1099-G in the mail. States were supposed to mail those notices out by Jan. 31.
“Some people knew there was fraud on their account, but there’s others who didn’t know there was fraud and they’re only finding out when they get the 1099-G,” Paxton says. “That’s really a brutal jolt to find out that the government thinks you had this income that you never got or somebody else stole your identity to receive that money.”
If you’ve been a victim of unemployment fraud, you might immediately fear that it could impact your state tax return. But try not to get too into the weeds: You should first and foremost file the most accurate tax return as possible, according to the IRS. That means only reporting the income that you did receive and sorting the rest out with the state, including retrieving an updated 1099-G that shows zero dollars’ worth of unemployment benefits were drawn.
Taxpayers should “contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits,” the IRS said in a January statement. “A corrected Form 1099-G showing zero unemployment benefits in cases of identity theft will help taxpayers avoid being hit with an unexpected federal tax bill for unreported income.”
3. If you’re still employed, work with your payroll or HR office
Your employer’s payroll office might be your biggest ally. Consider utilizing them to contact your state unemployment agency, whether you’re missing unemployment benefits or are mistakenly receiving money in your name.
Most state agencies also have to certify your unemployment benefits by verifying with your employer that you did, indeed, lose your job through no fault of your own (meaning, no misconduct). When in doubt, it also might be worth letting your employer know if you’ve been subject to fraud, just so they are aware and aren’t surprised if or when they see a notice from the state. In general, it’s good to have as many people on your side as possible.
4. Try as hard as you can to get someone from your state unemployment office on the phone
It can be tricky to track down an actual human from your state unemployment agency, but if your benefits are either being held up, going to the wrong person or coming to you mistakenly, it’s worth prioritizing making actual contact. Try leaving your phone number for a callback if your state has that option, and then following up with an email.
“A lot of people don’t devote hours to calling repeatedly and staying on hold, but if you can get a person on the line, that would be the most likely thing to help you,” Paxton says.
5. Work with a law office or unemployment expert to get help
Both national and regional organizations similar to Paxton’s Washington-based organization are out there to answer your questions. If you have any questions and can’t get anyone on the phone immediately, see if you can get them answered by going to a nonprofit organization’s hotline meant for unemployed Americans. But be aware: You might still not be able to avoid delays; it’s just another possible option.
6. Reapply and submit new forms of identification or documentation
If you’re a jobless American who’s worried about being flagged for fraud, log into your state’s unemployment application and update any information that might be raising red flags for you. You might also want to consider submitting new forms of identification, particularly those displaying your address or a photo ID. You should double check that your payment profile is up to date to ensure that your payment doesn’t go somewhere else.
7. Contact your state representative or lawmaker
Paxton recommends contacting your state representative or lawmaker, another human who might be able to help you. A lot of times, there’s power in numbers, meaning if enough people alert an elected official about an issue they might be forced to take action or at least look into it for them. The same goes for news outlets, she says.
8. Don’t let it deter you from applying
NELP’s Marquez says one of her biggest worries about massive unemployment fraud is that it might deter Americans from applying for benefits and getting the help they need. Yet, experts say you should never avoid filing if you’re unemployed.
At this point in the game, your state unemployment agency and the IRS might be used to dealing with these issues by now, meaning you shouldn’t fret if you are flagged for fraud.
“UI has always needed some really deep structural changes,” Marquez says. “Now, we’re seeing even when states have made those changes, it really is just not enough. Really, it touches people, if we have systems or technology in place that’s supposed to make it easier for folks to actually get benefits in hand.”
- Missing your coronavirus stimulus check? Here’s how to claim a Recovery Rebate Credit
- 7 steps to avoid surprise tax bills and penalties on your coronavirus unemployment benefits
- College students may be able to collect up to $1,800 in stimulus payments, here’s how