Don't Mess With Taxes

Unemployment benefits can help relieve some of the sting of losing your job. But there are downsides. The monthly amounts again are fully taxable. And during the COVID pandemic, criminals have had a field day getting fraudulent payments, and causing tax troubles for those individuals whose identities they stole.

The COVID-19 pandemic and employment still are inextricably linked. When the coronavirus hit the United States in 2020, the concern was for the companies that had to shut down, and their employees who suddenly were without paychecks.

Congress passed a series of COVID relief bills that provided relief options for companies and economic impact payments for individuals. Federal lawmakers also exempted up to $10,200 of unemployment benefits paid in 2020 from taxation.

But true to the no good deed goes unpunished life rule, especially when government agencies get involved, there were glitches.

COVID created a whole new set of scams.

Crooks applied for, and sometimes received, fraudulent Paycheck Protection Program (PPP) loans.

On the individual side, unemployment benefits were complicated when the pandemic continued into 2021, but the tax exemption on the benefits was not.

Unemployment fraud tax troubles: And, of course, there was unemployment fraud.

Identity theft and other sophisticated criminal schemes siphoned billions from pandemic unemployment benefits, according to an article in today's Washington Post. Specifically, write reporters Tony Romm and Yeganeh Torbati, fraudulent unemployment claims contributed to $163 billion in waste.

That amount is this weekend's By the Numbers figure.

And, as Romm and Torbati note, there are humans — and tax implications — behind the numbers.

In one case, a Florida woman received a 1099-G that counted around $3,700 in fraudulent benefits as her own income, potentially subjecting her to taxes for aid she never actually received. She told the newspaper that it took roughly a year for her just to get Florida to review her case file formally. She is still awaiting revised documents that would allow her to file her taxes properly.

As a side note, she also recounted to the reporters her problems with Florida's unemployment portal.

When she tried to log on after getting notice of benefits she didn't receive, she had trouble verifying her identity through ID.me, a company the Internal Revenue Service and other federal agencies also use, and which the House Oversight Committee now is investigating. It took her 11 days to finally get into the system and learn someone had been collecting unemployment checks in her name, but routing them to a bank account other than her own.

National crisis and costs: To hit the $163 billion level, similar unemployment fraud instances obviously occurred across the United States.

The Biden Administration and Capitol Hill are looking into remedies. But it might not be enough, write Romm and Torbati:

"The scramble in Washington may be too late for those Americans who scrounged for aid while criminals feasted on generous federal benefits. But lawmakers, labor advocates, tech experts and law enforcement officials agreed that the government still needs to act swiftly, and aggressively, to stem the tide of a fraud that has left few untouched in its wake."

You also might find these items of interest:

• Unemployment tax troubles: wrong 1099-G amounts & benefits ID theft
• GOP tax committee members seek COVID unemployment fraud investigation
• Labor Department joins IRS in offering online resources for unemployment fraud victims
• Dallas man already jailed for tax fraud, pleads guilty to new PPP criminal charges
• [Another] Texas man pleads guilty to $24.8 million PPP fraud; IRS touts more success in COVID-19 investigations

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