Unemployment Fraud Can Cost You — Here's How to Stop It

Unemployment fraud is when someone, either an actual employer or a claimant, knowingly submits false information in order to get unemployment benefits. Criminals will also steal your identity to claim unemployment in your name.

While pandemic-era fraud put the unemployment insurance system in the spotlight, the problem hasn't gone away. The Department of Labor's improper payment rate for fiscal year 2024 remains at 14.41% — well above pre-pandemic levels — indicating that billions in benefits are still being paid each year incorrectly.[1]

Unemployment fraud remains a major issue, and it is important to understand the different ways it can occur. This guide will explain everything you need to know about unemployment fraud so you can avoid becoming a victim of this serious offense. We'll also share the best identity theft protection services to give you better protection. 

How does unemployment fraud occur?

Unemployment fraud could be committed by employers or by people claiming benefits to which they are not actually entitled. This includes workers who steal benefits when they shouldn't be eligible. Unemployment fraud could involve stolen identities, which means a scammer has claimed benefits under someone else's name.

It's important to know all the different kinds of unemployment fraud, as any type of fraud against the system can have consequences.

Employer fraud

Employer fraud occurs when companies fail to fulfill their legal obligations under their state's unemployment laws. This could include:

• Lying to prevent employees with a legitimate claim from collecting benefits (such as misrepresenting the reason an employee was let go from a job).
• Paying workers under the table and not reporting their income to avoid paying unemployment insurance on them, and/or to allow those workers to continue collecting unemployment benefits while also collecting a paycheck.
• Reporting employees' wages incorrectly so workers don't receive the correct benefits (and employers don't pay the correct taxes).
• Intentionally misclassifying employees as independent contractors to avoid paying unemployment taxes and to avoid having to pay these workers their benefits if they are let go.

Workers need to be watchful of these types of wrongdoing committed by companies.

Claims in multiple states

In general, you will need to submit a claim for unemployment benefits in the state where you work. If you work in multiple states, you'll need to learn the rules for getting benefits in both — but generally, this involves reporting the total combined income earned from each state and making a Combined Wage Claim in one particular location.

However, you are not allowed to double-dip and collect unemployment from multiple states at the same time, nor are you allowed to collect unemployment benefits in one state while working in another, as this is considered unemployment fraud.

Identity theft

Scammers can steal someone else's identity and file a claim for unemployment benefits in that person's name. In some cases, identity thieves can illegally collect benefits using someone else's Social Security number, date of birth, and other personal details.

Ghosting identity theft

Ghosting identity theft is a twist on regular identity theft. It occurs when a fraudster steals claimant information from a deceased person and misuses it for various purposes, including collecting unemployment benefits. Often, scammers can find personal information in obituaries and use other online websites to commit this type of identity theft.

Misrepresenting your work status

Employees who are collecting unemployment benefits generally need to report any income they earn. If an employee works while collecting benefits and fails to report it, it’s considered unemployment fraud. This could result in the worker getting benefits to which they aren't entitled.

Workers are also typically supposed to report if they are on vacation or injured and thus unable to work. If they don't do that and they collect benefits when they aren't available to actually take a job, this could be considered unemployment fraud as well.

Falsifying work search efforts

If you are on unemployment benefits, you are supposed to be actively looking for work. States have different rules for exactly what this means. But, in general, if you falsify reports of your job-search efforts or you do not report refusals to work when you are offered a job, this could be considered unemployment fraud.

Unemployment fraud red flags

There are some signs that suggest you may have been a victim of unemployment fraud. The following are major red flags indicating that unemployment benefits have been improperly claimed in your name:

• You receive a 1099-G that lists benefits you didn't get. An IRS Form 1099-G is used to report unemployment benefits, which are considered taxable income. This is the surest sign that your personal information has been misused to claim benefits improperly in your name.
• You receive mail from any government agencies about unemployment benefits or claims you didn't make. This could include debit cards or payments and could come from any state.
• You get a notification from your employer related to an unemployment benefits claim you didn't file.
• You receive a notification that the address or bank account where your unemployment benefits are being deposited has changed.

What to do if you are a victim of unemployment fraud

If you are a victim of unemployment fraud, you are not alone — and you aren't responsible for any financial damages.

You won't have to pay back unemployment benefits that were fraudulently paid out in your name (unless you committed unemployment fraud), and you won't have to pay taxes on benefits that were paid to a scammer.

If you are a victim of unemployment fraud, there are certain steps you should take, including the following:

1. Let your employer know about the fraud: You should file a report as soon as you can, and you should keep a record of who you spoke with and the date you filed the report.
2. Alert your state unemployment benefits agency: You'll want to let your own state's benefits agency know of the fraudulent claims. You can find a list of state agencies online at CareerOneStop. Many states have a separate fraud hotline. For example, in Pennsylvania, you could call the fraud hotline at 1-800-692-7469. However, the Federal Trade Commission recommends reporting fraud online whenever you can, as this can expedite the process.
3. File a police report: Your employer or your state's unemployment benefits agency may suggest (or require) you to file an identity theft report with your local police department if your information was misused to claim unemployment benefits.
4. Report the fraud to the FTC: You can do this by visiting IdentityTheft.gov, where you will also learn the steps you can take to secure your personal information going forward.
5. Take steps to secure your personally identifiable information: This includes changing passwords and contact details, using a password manager to create secure passwords, shredding any papers containing personal information, and being careful about whom you disclose identifying information to.
6. Place a fraud alert on your credit report: It's a good idea to make potential lenders aware you've been a victim of identity theft in case someone tries to apply for credit in your name. You can do this by placing a fraud alert on your credit report for free with each of the three major credit bureaus: Equifax, Experian, and TransUnion. This is a quick and simple way to prevent thieves from misusing your information.
7. Freeze your credit: If unemployment fraud happened in your name, scammers may do other things with your information as well. A credit freeze locks up your account, so when anyone tries to open credit in your name, they can't. You'll have to go through a special unfreezing process if you want to be able to open new accounts for a credit card, take out a loan, or otherwise undergo a credit check after you've frozen your credit.

Top identity theft protection services

You may also wish to look into our identity protection guide to find out other ways to keep your personal information more secure going forward.

How to report unemployment fraud

It is important to report unemployment fraud to the appropriate parties so they can conduct an investigation and hopefully prevent further fraudulent payments. There are actually a number of different places where you can — and should — report when fraud has occurred.

Report unemployment fraud to your state

Go to CareerOneStop to find your state's Department of Unemployment or use the guide at the Department of Labor to find the phone number and direct web link for fraud reports in your area. For example, the Department of Labor site links directly to Louisiana’s website for reporting unemployment fraud and it provides a phone number (1-866-783-5567). This site offers this information for each state.

You will need to follow your state's instructions, which can include providing details about a 1099-G form issued in your name.

Report unemployment fraud to the National Center for Disaster Fraud

You should also report fraud to the National Center for Disaster Fraud (NCDF), which is operated by the U.S. Department of Justice. You can do this by calling 1-866-720-5721 or by using the NCDF forms available online. This should be done only if the fraud occurred after March 2020.

Report unemployment fraud to the FTC

You should also provide details about your fraud to the FTC at IdentityTheft.gov. Here, you will receive assistance in creating a step-by-step identity theft recovery plan.

You do not need to report the identity fraud to the IRS, but you can file Form 14039, Identity Theft Affidavit, if your tax return is rejected due to someone misusing your personal identifying information to file a fraudulent return. 

When you file your taxes, you should not include any income from unemployment benefits that were reported on your 1099-G form while an identity theft investigation is underway.

Tips to prevent unemployment fraud

There are some steps you can take to protect yourself from unemployment scams:

• File your taxes early.
• Avoid sharing your PII.
• Use unique passwords for all of your online accounts.
• Be sure your passwords are complex.
• Change your passwords regularly.
• Always opt for two-factor authentication when available.
• Use a credit monitoring service, especially if you are notified of a data breach.
• Get an identity theft protection service, which will give you early alerts to possible theft as well as remediation services.

Bottom line

If you receive a 1099-G in the mail or other communication from a government official suggesting you are receiving unemployment compensation you didn't apply for, it is important you take swift action to report the likely fraud to your state.

You should also take steps to lock down your credit and should check your credit report ASAP to ensure your personal information has not been used in other ways. This guide on how to read your credit report can help you spot red flags so you can act quickly.

You owe it to yourself to protect your identity, and being on the lookout for fraud can help.

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