Have You Been a Victim of Unemployment Benefits Fraud? What to Know and What to Do

Stories about unemployment benefits and unemployment benefits fraud have been featured in the news since the beginning of the COVID-19 pandemic. Criminals have been increasingly successful at using the names and personal identifying information including of individuals who are still employed to gain improper benefits payouts. In fact, a report from the U.S. Government Accountability Office suggests that criminals potentially stole more than $60 billion of a projected $163B improperly paid benefits from the nation’s unemployment insurance program during the COVID-19 pandemic.

With such sizable losses attributed to unemployment benefits fraud, scammers are sure to keep attempting these scams and could target any of us for possible quick cash. Learn how the scam often works and what you might want to do if you become a victim.

Employed or Not: Anyone Can Be a Victim

You are most likely to learn about an incident of unemployment benefits fraud from your employer or when you receive a notice from the state unemployment agency about an application for benefits filed using your identity. In many cases, however, by that time the funds have already been paid to an account under the criminal’s control. It is possible that you may not realize you have been targeted until you try to file a claim for legitimate unemployment insurance benefits or receive a notice from the IRS.

The FBI advises you be aware of:

  • Communications regarding unemployment insurance when you have not applied for unemployment benefits
  • Unauthorized transactions on bank or credit card statements related to unemployment benefits
  • Any fees involved in filing or qualifying for unemployment insurance
  • Unsolicited inquiries related to unemployment benefits
  • Fictitious websites and social media pages mimicking those of government agencies

How the Unemployment Scam Works

Criminals typically use stolen identities to help impersonate the victim and submit fake unemployment benefits claims on their behalf. They are attracted to the potential of a possible large payout for each fraudulent claim.

Scammers may try to steal your identity by purchasing information on the dark web, contacting you impersonating government officials or trusted organizations, sending phishing emails, attempting to steal electronic or physical data, or searching websites and social media.

The Impact of Unemployment Fraud on Victims

If you become a victim of unemployment benefits fraud  it may lead to even bigger concerns.

  1. Unsuspecting victims could be lured as “money mules” - Fraudulent unemployment payments are often deposited into accounts under the imposter's control. However, in some cases payments are made to the victim’s legitimate account, and the scammers may call, email or text the victim and impersonate an official from the state unemployment agency in an attempt to recover the money. This is a money mule scam and could cause even more problems for the victim.

Money mules are individuals asked to receive funds in their bank account and then “process” funds via wire transfer, mail, or money service. The FBI advises individuals to better protect themselves by refusing to send or receive money on behalf of individuals and businesses for which they are not responsible, and to be wary of online job postings and messages promising easy money for little to no effort.

  1. It can be a slow process to get unemployment funds replenished. – Once an investigation shows that an individual is a victim of unemployment fraud, their funds will be refilled. However, this can be a slow process which can take weeks or even months. If someone becomes a victim while employed, the unemployment benefits will be available to them in the future. The victim may, however, have to clear their name before they can access their benefits.
  1. Victims will receive a 1099-G tax form for unemployment benefits they didn’t receive. – Unemployment benefits are taxable, and states will mail recipients Form 1099-G so the payments can be included as income on tax returns. If you don’t act to confirm it was fraud, you may be held responsible for these taxes. The IRS advises victims to contact their state for a corrected form showing that the amount they received was $0. Victims filing taxes before receiving a corrected form should report only their actual income. For more details, review the IRS guidance.
  1. Unemployment fraud can put victims at risk of more identity fraud. – Filing false unemployment claims indicate that criminals have victims’ personally identifying information (PII), including Social Security numbers and dates of birth. PII in the wrong hands could put you at risk for more identity theft and fraud.

What Individuals Can Do If They Are a Victim of Unemployment Fraud

The FTC recommends the following steps if an individual suspects they are the victim of unemployment benefits fraud.

  • Report the fraud to the employer
  • Report the fraud to the state unemployment benefits agency - The Department of Labor provides a list of hotlines and websites by state. The FTC recommends reporting the fraud online if possible, as it could save time and be easier for the agency to process. It’s advised to keep any confirmation or case number and a copy of all communication.
  • Report the fraud to the FTC at IdentityTheft.gov.
  • Review credit reports regularly - The FTC advises checking your credit report for free at AnnualCreditReport.com.

If you are a subscriber to ID Watchdog, our resolution specialists are there to help you report and resolve the unemployment I fraud and help you better safeguard yourself against future identity fraud.

To learn more about identity fraud schemes to beware of, read Three of the Top Identity Theft and Fraud Scams to Look Out for in 2023.

The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to you or to your company and its specific facts and needs, please consult your own tax advisor or legal counsel. Links to sources may be to third party sites. We have no control over and assume no responsibility for the content, privacy policies or practices of any third party sites or services.