Mass. residents discover they’re unemployment fraud victims after getting unexpected 1099-G tax forms

At least 130,000 1099-Gs linked to fraud in Mass.

BOSTON — She recognized the document, but Peggy Schmidt, an accountant from Merrimac, knew something was amiss.

“When I opened it, I started shaking. I was nervous,” she said. “Because you start thinking, ‘What happened? How did that happen?’”

Inside was a 1099-G tax form from the State of Massachusetts. 1099-G forms are commonly used to report certain government payments made to an individual, such as state unemployment compensation. Peggy’s reflected $7,300 in income for unemployment benefits in 2020. The problem? Peggy never filed for unemployment. In fact, she’s been busy working from home throughout the pandemic.

“Once you go on the unemployment website it talks about the fraud. It hits you in the face and you’re like ‘This is fraud,’” said Schmidt, who after realizing someone filed a bogus unemployment claim using her name and personal information contacted the Massachusetts Department of Unemployment Assistance (DUA) right away to correct the problem.

“I tried calling once and you go through the automated menu and then they tell you they’re too busy and they hang up.”

25 Investigates has been uncovering the extensive unemployment fraud occurring in Massachusetts and across the US since March. Our team has repeatedly asked DUA to explain how the state is working to prevent fraud and how much the state has lost to pandemic unemployment fraud.

New data obtained by 25 Investigates reveals the extent of the fraud occurring in the state. In an email, DUA said it “has excluded sending 1099-Gs to claimants who filled out the fraud forms as long as the information matched with those in the PUA and UIOL systems. Around 130,000 1099-G forms were suppressed from being sent.”

That number likely only represents individuals who became aware of the fraud in 2020 and reported it to DUA then. In November, 25 Investigates reported that thousands of MA residents were receiving unsolicited debit cards in the mail linked to fraudulent unemployment accounts.

Though at the time DUA would not speculate on how many MA resident were targeted by the debit card scam, an unemployment fraud expert we consulted for our story predicted the full extent of the crisis would come to light at tax season, when unsuspecting victims begin to see income they did not receive counted in their taxes.

“I think it’s going to be a total disaster in January and February,” Terry Savage told 25 Investigates in November. “The states report that the money went out to your name and social security number. How do you untangle that mess? That’s going to be next winter’s problem.”

Now, hundreds of unsuspecting victims, like Peggy, are learning for the first time their identities were used on fraudulent claims, and they have a new worry to contend with this tax season.

David Consigli, an accountant with AAFCPA in Boston, says victims can avoid a tax nightmare if they follow a few important steps. First, he says, individuals should quickly report the fraud to DUA. He advises against contacting the IRS unless you filed electronically and your return gets rejected. Also, he adds, fraud victims should immediately check their credit report.

“This is identity theft and you want to make sure that nothing else has happened with your identity and your Social Security or, you know, any type of other identity theft,” said Consigli.

After taking those two key steps, he strongly recommends the following: “It’s really important that if you get a 1099 G and you A) have not received any unemployment compensation, then you shouldn’t be reporting that on your tax return, and B) it’s very important to make sure that even if you did receive unemployment compensation, that the amount reported on the 1099 G is correct.

Bottom line, according to Consigli: “if you didn’t receive the money, don’t report it on your tax return, and it’ll get resolved.”

His office has some extra guidance for unemployment fraud victims in this blog.

DUA tells 25 Investigates the agency has issued 1.2 million 1099-Gs and of those, “around 1600 individuals are in the appeals process for a correction to their 1099-G,” adding that not all of them are related to fraud.

Peggy does not know when the illegitimate claim was filed or how it got past the state and her employer, but she is demanding answers. She appealed the fraudulent income and contacted her state representatives and the Governor’s office seeking help. She also filed an official request for records with DUA asking for all documents in their possession containing her name and social security. Peggy is determined to get to the bottom of the fraud. In the meantime, she says she will clean up her taxes as best as she can before the April deadline.

“I’m probably going to have to paper file my return and I’m going to hope for the best,” she said.

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