Tuesday August 9, 2022
How to Recover from Unemployment Compensation Fraud
Due to the COVID-19 pandemic, millions of Americans were unemployed during 2020 and 2021. Most of these individuals qualified for unemployment compensation benefits. However, criminals also benefited by targeting these individuals for identity theft. The U.S. Department of Labor Inspector General estimates that criminals captured $89 billion of unemployment compensation through fraud and identity theft during 2020.
IRS Commissioner Chuck Rettig stated, "Identity thieves always look for opportunities, and the unemployment surge presented a new opportunity to exploit the pain and financial hardships faced by Americans. This particular scam is especially egregious because 23 million Americans were jobless or underemployed last year, and desperately needed these benefits."
Unemployment compensation is taxable income. However, Congress passed an exclusion for up to $10,200 in unemployment compensation for the 2020 tax year in the American Rescue Plan Act of 2021. To qualify for the exclusion, taxpayers in all filing statuses must have less than $150,000 of adjusted gross income (AGI). Tax advisors and victims of unemployment compensation fraud should take multiple steps to correct the fraudulent activity.
Editor's Note: Commissioner Rettig is correct that this is a particularly outrageous form of identity theft. Many of the victims desperately needed to receive their unemployment tax benefits. By following the guidelines and reporting this fraud to the Internal Revenue Service, the Department of Labor and the Federal Trade Commission, the advisor can enable a victim to recover his or her status and qualify again for federal benefits.
Published August 6, 2021