The number of Coloradans whose identity was stolen and used to make fraudulent claims for unemployment insurance may dramatically increase when the Colorado Department of Labor and Employment sends out wage and tax statements to recipients this month.
Each January, employed workers receive a W-2 form from their employers showing how much they made in the prior year, and how much was taken out in state and federal taxes, information they need to complete their income tax filings.
Unemployment insurance benefits also are taxable income, and people who received payments get a similar statement, which is called a 1099 form. Like the W-2, that individual tax information also is shared with the federal Internal Revenue Service and the Colorado Department of Revenue.
While the state’s labor department has been dealing with a dramatic spike in fraudulent claims because of the COVID-19 pandemic and its impact on the economy, most of those cases were discovered by people who received a UI payment credit card or a pin number to access it that they didn’t request.
When the department sends out the 1099s, many of which went out on Wednesday, it’s expecting to find a lot more instances of fraud on people who didn’t know their identity was stolen and a fraudulent claim was made on their behalf.
Cher Haavind, deputy director of the department, said that about $10 million has already been paid out in fraudulent claims in 2020, adding that about $7 billion worth of fraudulent claims were caught before any money was paid.
Haavind said there were about 800,000 fraudulent claims for federal benefits last year, and about 150,000 for regular state unemployment.
“We are walking a tight rope here,” said Joe Barela, executive director of the department. “We know we want to get benefits out as quickly as possible to those who need unemployment insurance at this time, but we also want to put systems in place to protect our benefits from going out the door to fraudulent claims. We’re doing our best to make sure we’re putting in strong measures to prevent fraud.”
Still, people whose identity was used in a fraudulent claim will have to jump through several hoops to avoid paying income taxes on unemployment benefits they didn’t actually receive. And that could include people who already reported a fraudulent claim.
People whose identity was used to file for benefits may not yet know a claim was filed on their behalf fraudulently because they may not have seen the prepaid debit card, called a ReliaCard, that was sent to them from the department.
Those people, however, will receive a 1099 form saying they owe taxes, and will be on the hook for it until they can show they didn’t file for benefits. If that happens, or if people who have already reported a fraudulent claim and receive a 1099 that says anything other than $0, they can contact the department, which will help them correct the problem, including sending a revised 1099 to the IRS. Suspected fraudulent claims can be reported through an online form at cdle.colorado.gov/fraud-prevention.
“When those individuals receive that (1099 form), we would encourage them to fill out the online form so we can get that updated and get that case closed,” said Phil Spesshardt, benefits services branch manager for the department. “They may have other issues we will have to instruct them on, other things they will need to do with the IRS to report that that was not them, and get them the corrected 1099.”
Department officials are expecting their ability to identify and stop fraudulent claims more quickly through its new computer filing system, which went online earlier this week.
That new system soon will include a new program called ID.me, a sophisticated method of identifying that someone is who they say they are, partly through facial recognition software that’s similar to the Real ID Act photos on their new Colorado driver’s licenses.
That also means that anyone who is filing for benefits will have to prove they are who they say they are, including those who are already receiving benefits and already supplied identification.