'It's very widespread': Thousands get tax forms for UI benefits they didn't seek or receive By JOHN HOWELL Thousands of Rhode Islanders are beings asked to pay federal and state taxes on money they never received. Over the last month, taxpayers started
Thousands of Rhode Islanders are being asked to pay federal and state taxes on money they never received.
Over the last month, taxpayers started receiving 1099-G forms from the Rhode Island Department of Labor and Training reporting how much they were paid in unemployment compensation for 2020. That’s fine for people who collected unemployment benefits, but the forms are also being sent to people who never filed a jobless claim.
What’s more, the information has also been sent to the Internal Revenue Service, meaning Uncle Sam expects to get its share of the payments.
It’s not that the payments were never made. It’s that the money went to people who gained access to the identities of countless of Rhode Islanders and falsely filed for benefits on their behalf.
That’s hard to pin down, but Major John C. Alfred, Detective Commander of the Rhode Island State Police, said last week his agency has received 45,000 reports of false claims for unemployment compensation or tax forms for compensation they neither sought nor were paid.
State Police saw a spike in reports following the shutdown in response to the pandemic, when the state’s unemployment shot from 5 percent in March 2020 to 17.9 percent the following month. The Department of Labor and Training was flooded with claims for unemployment compensation. There were reports of people waiting on calls for hours just to start the process of filing for unemployment.
During the period when the federal government augmented weekly payments by $600, many people who were employed received notices from DLT that they were approved for unemployment benefits even though they had not applied for them. Some people called DLT to report the notifications and that they were working.
According to Judy (not her real name), she was told she would not be issued a check and to call the State Police. She went on the State Police website and filled out a stolen identity form on unemployment fraud. That was last April. She thought she was good until about two weeks ago, when she received another notice she had been approved for unemployment compensation. She repeated the process.
Others receiving approval notices saw no reason to notify the DLT since they were working and hadn’t applied. Now, many of these people are receiving the 1099-G forms.
In some cases the forms reflect payments of less than $500.
Alfred speculated the amount reflects a single week payment and that the perpetrator either didn’t file for successive weeks or was detected as a false claimant when they refilled.
He said payments are usually direct deposits to accounts that have been set up by the scammers. He wouldn’t elaborate on the schemes used by scammers to get the money or how they obtained the identities in the first place, as this is an ongoing investigation with the FBI. He said banks have been cooperative in flagging accounts with suspicious activity and speculated personal information was more likely obtained from a number of major cyber security breaches and “bought” by unscrupulous people.
“It’s very widespread,” he said.
According to DLT spokeswoman Margaux Fontaine, the DLT has paid out $2.7 billion total in unemployment benefits in state and federal funds since the beginning of the pandemic (March 9).
“We have identified approximately $30 million in fraudulent payments, which is 1 percent of what we've paid out in total,” she said in an email. She said $3.5 million has been recovered thanks to the department’s efforts, but that she would not be able to provide specifics on the number of fraudulent claims “because they’re considered part of our pending investigations at this time.”
The extent of unemployment compensation fraud reaches even greater proportions in larger states. According to a report in the Wall Street Journal, California Labor Secretary Julie Su reported that out of the $120 billion paid in unemployment claims, $11.4 billion went into the pockets of foreign cyber criminals, prison inmates and other scammers.
What’s being done to stop the fraud?
“DLT has numerous measures in place to prevent, detect, and stop unemployment insurance fraud,” Fontaine writes.
“Last spring, we began working with a cybersecurity vendor to develop advanced artificial intelligence models to recognize and stop fraudulent claims. All UI (unemployment insurance) claims go through a screening process, and our models are continuously updated to incorporate new data. We’ve worked hard to fulfill DLT's dual mission: to ensure our anti-fraud measures are as effective as possible, while making sure legitimate claimants can get the benefits they need during this economic crisis as quickly as possible,” she said.
Alfred advised these people to go on the State Police website and fill out the form.
“No one will have to pay a cent in taxes on unemployment benefits that they didn’t file for or receive. We have set up a form on our website for people to report receiving a fraud-related 1099-G to streamline the process of getting a corrected version to reflect that they did not receive unemployment benefits in 2020,” Fontaine said.
The form can be found at www.dlt.ri.gov/1099/reportfraud.
According to a release issued in January by the IRS, “Taxpayers who receive an incorrect Form 1099-G for unemployment benefits they did not receive should contact the issuing state agency to request a revised Form 1099-G showing they did not receive these benefits. Taxpayers who are unable to obtain a timely, corrected form from states should still file an accurate tax return, reporting only the income they received. 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.”
Last week, the Rhode Island Division of Taxation suggested steps to take if you have been a victim of identity theft. In a release, Rhode Island Tax Administrator Neena Savage described identity theft in general as when someone uses your Social Security number or other personal information without your knowledge to open new accounts, make purchases, or get a tax refund.
“Identity theft can also involve your taxes: Tax-related identity theft happens when someone steals your personal information to commit tax fraud. Your taxes can be affected if your Social Security number is used to file a fraudulent return or to claim a refund or credit,” Savage said.
Savage recommended taking the following steps: