Tax Tips

How to File: Unemployment Benefits, Fraud and Taxes

NBC 7 Responds looked at what to do if you received unemployment, or got a 1099-G and didn't

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Hundreds of thousands of people in California received unemployment benefits. While the state does not require you to pay taxes on them, they are taxed at the federal level.

"So if you didn't have any tax withholding taken out of that, you may see a surprise this year in terms of owing taxes on that unemployment," said IRS Spokesman Raphael Tulino.

If you received unemployment benefits, you should get a 1099-G form. That will show all the benefits you received, along with any taxes that were withheld. The more complicated issue is people who received a 1099-G but never applied for unemployment benefits or received any money.

NBC 7 has reported on the fraud tied to the state's Employment Development Department (EDD). Some people have received multiple letters as part of an application process, but never received any money. Tulino says your tax return should only reflect money you actually got.

"You can still file a federal income tax return," said Tulino. "Report only the income you received on that return."

Make sure to contact the state agency for unemployment that sent you a 1099-G form so they can issue a corrected form. That will help you avoid any issues with the IRS.

"The IRS gets that same form as well," said Tulino. "That's a third party reporting form, that's the first thing."

If someone had enough information to file for unemployment benefits on your behalf, you might want to add some extra security to your tax process.

"Consider an Identity Protection PIN," said Tulino. "It will help separate you from the bad guy when you send in your return and we begin to process it."

The IP PIN is a one-time number that would be issued every year for your return. While the program has been used for specific cases, this is the first time it can be used by anybody.

"It's new this year and available for anybody throughout the country," said Tulino. "The IP PIN will attach to your tax return you file as a separate number to help us in the fight against identity theft."

If you want to get your return processed quickly, be sure to file early and online.

"Avoid filing by paper if you can," said IRS Enrolled Agent Craig Fortin, who is licensed to represent people in tax disputes with the IRS. "It's just going to cause you delay, delay, delay."

The IRS says at least 10% of people still file by mail. The coronavirus pandemic caused a lot of delays with the mail system. Tulino says that added to a delay with processing returns from last year.

"We have this backlog of unopened mail," said Tulino. "We're just now getting through it and processing all those 2019 returns and doing the best we can and trying to get those through."

The IRS started processing 2020 returns on February 12. For more information visit IRS.gov.

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