Surprise tax forms reveal extent of unemployment fraud in US

SACRAMENTO, Calif. (AP) — Unemployment agencies across the country were bombarded with so many claims during the pandemic that many struggled to distinguish the correct from the criminal.

Now, simple tax forms — barely enough to fill a half-sheet of paper — are revealing the extent of the identity theft that made state-run unemployment offices lucrative targets for fraud after millions of people lost their jobs during the pandemic.

Unemployment benefits are taxable, so government agencies must send a tax form — known as a 1099-G — to people who received the benefits so they can report the income on their tax returns. States are mailing 1099-Gs in huge numbers this year after processing and paying a record number of unemployment claims.

Teri Finneman of Lawrence, Kansas, was surprised when she got a form saying she owed taxes on $1,500 in unemployment payments that she never received — a sign that someone likely stole her personal information and used it to claim benefits.

“It is extremely frustrating how many Kansans have been impacted by this,” she wrote in an email to The Associated Press.

Nearly 26 million people requested unemployment aid in the initial months after states began ordering shutdowns due to the pandemic. The unprecedented surge strained state unemployment offices that are governed by federal rules but administered in patchwork fashion by state governments, with many relying on 1960s-era software to process applications and issue payments.

The federal government, as part of its $2 trillion relief package approved in March, significantly expanded jobless aid, making it a richer target for fraud. By November, states across the country said they had paid as much as $36 billion in improper benefits, with a significant portion obtained through fraud, according to a report from the U.S....