Will Identity Theft Victims Have to Pay Tax on Unemployment Benefits They Didn't Receive?

Scammers were busy last year filing bogus unemployment benefit claims using stolen personal information. Here's what the IRS has to say about taxes for ID theft victims.

picture of identity thief at computer
(Image credit: Getty Images)

When most people think of identity theft, images of phony bank accounts, fraudulent tax returns, and unauthorized credit card purchases spring to mind. But there are many other ways scammers can use your personal information to steal money or property – like filing false unemployment benefit claims. There was a rash of this kind of identity theft activity in 2020, which was driven by the rush to get unemployment benefits out quickly during the pandemic and the lure of an extra $600 per week in benefits for part of the year.

But some identity theft victims are now getting a Form 1099-G in the mail reporting unemployment benefits they never received. Unemployment benefits are subject to federal income tax just like wages, and most states tax them too. So, does that mean identity theft victims will have to pay taxes on the unemployment benefits that were swindled using their personal information?

The IRS says "no." The tax agency is telling ID theft victims who receive an incorrect Form 1099-G for unemployment benefits they didn't receive to contact the issuing state agency and request a revised Form 1099-G showing that they didn't get these benefits. The IRS is also instructing states to issue corrected forms to the identity theft victims as soon as possible after the error is discovered.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

Identity theft victims who are unable to obtain a corrected 1099-G form before filing their 2020 tax return should still file a return, but only report income they actually received (2020 returns are due April 15, 2021). The IRS will receive a copy of the corrected 1099-G form when it's issued.

Identity Protection PIN Numbers

If you're worried about your personal information being stolen and used to file a fraudulent tax return, you can request an Identity Protection PIN (IP PIN) from the IRS. An IP PIN is a six-digit number that prevents someone else from filing a tax return using your Social Security number. The IP PIN is known only by you and the IRS, and this step helps the IRS verify your identity when you file an electronic or paper tax return.

In the past, only confirmed identity theft victims were able to get an IP PIN. However, starting in 2021, anyone can request an IP PIN and an extra layer of protection from tax-related identity theft. You'll have to pass a rigorous identity verification process, though. Spouses and dependents are also eligible for an IP PIN if they can pass the identity proofing process.

How do you get an IP PIN? If you're a confirmed identity theft victim, the IRS will mail you an IP PIN if your case is resolved prior to the start of the next filing season. Otherwise, you should use the IRS's online Get an IP PIN tool. If you don't already have an account with the IRS, you must first register to validate your identity.

Rocky Mengle

Rocky Mengle was a Senior Tax Editor for Kiplinger from October 2018 to January 2023 with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, Rocky worked for Wolters Kluwer Tax & Accounting, and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky holds a law degree from the University of Connecticut and a B.A. in History from Salisbury University.