Even worse, some could get notification that they owe taxes on unemployment benefits they never received or even applied for. Widespread fraud has plagued state unemployment offices as thieves have applied for payments under stolen identities—taking the cash for themselves and sticking an unsuspecting victim with the tax bill. State agencies have paid out at least $36 billion in improper jobless benefits, many of those tied to fraud, according to an estimate in November from the Department of Labor Inspector General.
Fraud Alert
Individuals who find themselves in this situation need to report the fraud to the IRS and request updated documents showing that they didn’t actually receive that income, said Bill Smith, a managing director for business consultant CBIZ MHM’s National Tax Office.
“It’s a nightmare,” said Smith.
Taxpayers could also find that they owe more in state taxes than they normally do. People who worked in a different state than usual because of the pandemic may owe taxes to that state, or even to multiple states depending on each jurisdiction’s rules, said Mark Luscombe, a certified public accountant and principal federal tax analyst at Wolters Kluwer Tax & Accounting.
The IRS advises that filing a tax return and working out a payment plan to submit the money later is always a better option than filing late or not filing at all. About 14% of taxpayers filed late or not at all in 2020, even after the IRS extended the tax deadline to July 15 amid the pandemic, according to a survey conducted by NerdWallet.
There aren’t any plans to extend the April 15 deadline this year, Corbin said.
This article was provided by Bloomberg News.