20-03-2025
Unemployment Benefits Can Raise Tax Questions—And Attract Scammers
Job seekers look over job opening fliers at the WorkSource exhibit, a collaborative effort by governmental agencies to offer jobs and job training resources in Pasadena, California. (Photo by)
Recent reductions in the federal workforce combined with general unease about the economy in the private sector means that some Americans are experiencing job losses. If you lose your job for reasons other than cause, you may be eligible to collect unemployment benefits.
How much you can collect depends on where you live—there is no federal unemployment program. Each state manages its own unemployment insurance program and pays its own benefits. (If you live in a state different from where you worked, file for unemployment in the state where you worked.)
To qualify for benefits, many states require that you have worked consistently and earned at least a certain amount within the last one to two years. You may also have to demonstrate that, after your job loss, you began looking for a new job.
The amount you can receive varies by state but typically totals about half of your prior income. How long you can receive benefits also varies by state—most settle around 26 weeks, though in some states, like Florida and Alabama, it's much less.
After a job loss, the last thing you want to think about is taxes, but getting the tax consequences right is crucial—especially when money is tight. Here are some tax-related tips to help you sort it out:
Scammers are also taking advantage of unemployment benefits. If you applied for unemployment benefits but haven't yet received them, you may be the victim of a scam. In one version of the scam, applicants are tricked into filling out an application on a fraudulent website and not from their state unemployment office—always check the validity of a website before you enter information (most legitimate government websites end in .gov, not .com). When in doubt, navigate directly to the website using an address rather than clicking through from another site.
If you were approved for unemployment insurance payments but have not received them, they may have been misdirected to another address. And, if the unemployment office rejected your application for benefits because they already received a claim under your name, a scammer may have filed for benefits using your name and personal information. Contact your state unemployment insurance program if you believe that you might be a victim.
Over the last few years, taxpayers have reported receipt of unemployment-related tax forms or other notices when they did not apply for unemployment benefits. If you've received a notice from your state unemployment office or Form 1099-G that shows you received unemployment benefit payments you never received, you may be the victim of a scam—someone may have used your name and personal information to apply for benefits.
If you receive a Form 1099-G you believe is fraudulent, you should report it to your state's official unemployment benefits agency and request a corrected Form 1099-G. Some states, like my state of Pennsylvania, have specific directions on their websites for reporting fraud. Don't simply ignore it—remember that unemployment compensation is taxable. However, the IRS advises that when you file your taxes, you should only include income you received, even if you have not yet received a corrected 1099-G—the processing of your tax return should not be delayed while your report of unemployment identity theft is under investigation.
If you receive a Form 1099-G that you believe is fraudulent, you do not need to file Form 14039, Identity Theft Affidavit, with the IRS. Form 14039 should only be filed if your e-filed tax return is rejected because a duplicate return has been filed with your Social Security number (or if the IRS tells you to file the form).
If you are the victim of unemployment fraud, you should consider opting into the IRS Identity Protection PIN program. An IP PIN is a six-digit number that helps prevent thieves from filing federal tax returns in the names of identity theft victims. The IP PIN is a voluntary program open to any taxpayer who can verify their identity.
You can learn more about identity theft and unemployment benefits from the IRS here.
If all of this seems overwhelming, remember that help is available. Don't be afraid to ask questions about benefits, deductions, and credits that can help reduce your tax burden at tax time—or help you navigate potential fraud. Ask your tax professional for help, or contact the IRS for assistance.
