Watch Out: Unemployment Scams Are Rising in the United States

Watch Out: Unemployment Scams Are Rising in the United States

Targets of unemployment identity theft may receive mail from a "government agency" about an unemployment claim or payment for which they did not file.

Those who collected unemployment benefits last year could face new challenges this tax season. That includes owing Uncle Sam. Unlike unemployment benefits that were paid to Americans in 2020, benefits from 2021 will be subject to federal income tax. Recipients who didn't have their taxes withheld—or didn't have enough to withhold–last year may owe money to the Internal Revenue Service (IRS), or at the very least will receive a smaller refund than expected.

The American Rescue Plan Act, which was passed by Congress last March, waived federal taxes on some unemployment benefits that were collected in 2020. This assistance covered unemployment benefits up to $10,200 for households that made less than $150,000. Because Congress hasn't approved a similar tax break this year, those expecting a refund may not receive one and could even wind up owing taxes.

Fraud On the Rise

The other concern as a new tax season begins is an increase in fraud. This month, the IRS warned workers to watch out for claims of unemployment or other benefit payments for which they never applied. According to recent reports, states have experienced a surge in fraudulent unemployment claims filed by organized crime rings using stolen identities.

Criminals have used those stolen identities to fraudulently collect benefits.

"Because unemployment benefits are taxable income, states issue Form 1099-G, Certain Government Payments, to recipients and to the IRS to report the amount of taxable compensation received and any withholding. Any worker receiving a fraudulent or inaccurate 1099-G should report it to the issuing state agency and request a corrected Form 1099-G," the IRS explained.

Individuals may be victims of unemployment identity theft if they received mail from a "government agency" about an unemployment claim or payment for which they did not file. That could include unexpected payments or debit cards, an IRS Form 1099-G reflecting unemployment benefits that weren't expected or received, or even a notice from their employer indicating the employer received a request for information about an unemployment claim.

"By the time the fraudster has applied for unemployment insurance, who knows what else they used your identity for," Michele Evermore, a senior policy advisor for unemployment insurance at the U.S. Department of Labor, told CNBC.

Those who think they might have been the victim of unemployment fraud can report the theft to the agency that issued the 1099-G, which in most cases will be your state unemployment agency. The U.S. Department of Labor has a directory where individuals can find the right agency and contact information. States can issue an amended tax form and update the record with the IRS on an individual's behalf, according to the Labor Department.

CNBC recommended that those who believe they may have been a victim of fraud should check their credit report for suspicious activity or unauthorized lines of credit. Taxpayers can request a free credit report every week through or call 1- 877-322-8228, according to the Labor Department. In addition, people should never send personal information to unverified sites or social media accounts.

Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on

Image: Reuters.