Tax Season is in Full Swing and so is Unemployment Fraud

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In 2019, federal and state governments spent approximately $30bn on unemployment compensation payments. In 2020? $600bn dollars. That difference, of course, is almost solely attributable to the COVID-19 pandemic, which has thrown millions out of work and shuttered countless businesses.

The truly extraordinary spending response at both the federal and state levels is commensurate to the extent of the need faced by so many families. After all, roughly 22 million jobs were lost in the early months of the pandemic, with nearly half of them still unfilled.

However, while such significant spending may be warranted, it has occurred in the context of a serious challenge that deserves far greater public attention: of the unemployment claims being filed, the Labor Department has warned, fully 10% of them could be fraudulent. That more than $60bn of taxpayer money has been falsely claimed in a time of desperation for so many is bad enough, but it is also coming at great cost to individuals.

From California to Michigan to Rhode Island to nearly every state in between, Americans are receiving government-issued letters in the mail notifying them that they owe taxes on claims they never made. One Ohio man received a tax form for $17,000 in claims he did not make. (This was much to his surprise; he had not worked in 13 years.) A Colorado man, who has never lived or worked a day in Kentucky, received a notice for taxes owed on unemployment compensation from the Bluegrass State. In Washington state, the Employment Security Department discovered, much to its chagrin, that its software had approved unemployment payments given out in the names of current ESD employees.

In other words, American taxpayers at large are not the only victims of fraud. Many individuals are also victims of identity theft. This is an increasingly worrisome trend, particularly in a time when the COVID-19 pandemic has forced so many traditionally in-person or hard-copy interactions into online spaces, including regular business transactions or even tax filing. Moreover, with so many institutions seeking to quickly and effectively provide aid to those in need, a number of typical safeguards against identity theft, such as wait times between the filing and payment of unemployment claims, have been dropped. This creates an additional layer of exposure to the risk of identity theft.

One especially difficult aspect of this problem is that once it has occurred, victims of identity theft are often left to fend for themselves. In the case of unemployment claims, for instance, they are responsible for contacting the state arguing that taxes are owed and making arrangements to ensure that they will not be held liable for the misdeeds of another. This can also be the case for any consumer who makes a purchase online, only to discover after the fact that their credit card information has been stolen.

Victims of identity fraud would, of course, prefer not to have to deal with the administrative and financial headaches associated with having sensitive financial information stolen or misused. To make such incidents less likely, then, there are proactive steps each person can take to protect against them. 

Especially with tax season in full swing, ensuring that financial information is secure is the best way to protect against fraud. This includes taking steps such as using and consistently updating strong internet passwords, only giving credit card information to trusted vendors, and avoiding suspicious emails and internet links that are not sent from trusted sources. 

Regular credit, dark web and identity monitoring is also an effective way to defend against identity theft. It is important to note that credit monitoring is not the same thing as simply pulling up an annual credit report. These types of monitoring are services offered by a number of companies that notifies consumers whenever their credit is checked or a new address is added to a credit card, and searches the internet to determine if any of a consumer’s personal information has been compromised.

Maintaining this kind of vigilance may not be a silver bullet against fraud in the digital age, but it will keep consumers much safer in a time of heightened risk. Both individually and collectively, then, we can each play a role in building a safer and more secure economic environment—all to the benefit of our COVID recovery.

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