photo by: Screenshot/Kansas Department of Labor

The Kansas Department of Labor's unemployment benefits website is pictured Dec. 29, 2020.

People whose identities have been used to fraudulently collect unemployment benefits from the Kansas Department of Labor are now facing another problem: making sure they don’t have to pay taxes on thousands of dollars that they never received.

Tonganoxie resident Nancy Landi is one of the many people — state officials don’t yet know exactly how many — whose identity was used to file a fraudulent unemployment claim with the state. Landi, who is retired, said that she realized in September that her identity had been used to make the fraudulent unemployment claim, and though she notified the department of the fraud, last week she received a tax form stating she had been paid $9,600 by the state of Kansas.

“I received no money but am now responsible for declaring this as income and paying the taxes on it,” Landi told the Journal-World. “Someone needs to pay the taxes on this income, but not me.”

The Department of Labor, operating with insufficient staff and an approximately 40-year-old computer system, has been inundated with both legitimate and fraudulent unemployment claims since the coronavirus pandemic set off waves of job losses. Though department officials recently told the Journal-World that the office stops 2,300 to 2,700 fraudulent claims per day, some fraudsters have succeeded in filing illegitimate claims or in “hijacking” legitimate claims and getting payments rerouted to their bank accounts.

Kansas Department of Labor Communications Director Jerry Grasso said in an email to the Journal-World that his office has blocked more than 250,000 fraudulent claims to date, but he did not have a firm estimate yet on the number of successful fraudulent claims or the amount of money that was paid out in error. Grasso said the department was undergoing a legislative audit to determine the extent of the fraud and would release those numbers once they became available.

Grasso noted that unemployment benefits are considered to be taxable income by both federal and state authorities and any benefits must be reported for tax purposes. He said the department of labor was prohibited from automatically withholding taxes from benefits, so taxes would not have been withheld from payments unless the claimant instructed the department to do so.

Landi was one of several people who reached out to the Journal-World in recent days saying she had received a 1099 tax form for unemployment benefits that she never sought or received. When she first received a notice from the department of labor about the claim in September, Landi said she spoke to someone from the department by phone to alert the office that the claim was fraudulent. But still, the notices kept coming, she said.

“I thought that would be the end of it, but the next week I got another letter,” Landi said.

Not only did the notices not stop, but Landi said additional notices started arriving that indicated that her husband, who remains employed, had also filed for unemployment benefits. Landi said they notified the unemployment office online that the claim was fraudulent, because they could not get through on the phone, and they even faxed the office weekly, but still each week brought another letter notifying them about their claims. She likened it to the scene from the Harry Potter book when the family faces an ever-increasing cascade of letters they cannot escape. Then, last week, came the tax form saying that Landi had received more than $9,600 in benefits.

For people trying to deal with the tax consequences of fraudulent unemployment benefits collected in their name, Grasso said they should dispute the tax form by submitting a declaration form by mail or online. As to any other advice, such as whether people in this situation have to wait to file their taxes until the tax form is corrected or can file without claiming the income they did not receive, Grasso said people would need to talk with a tax professional.

To help combat fraud, the unemployment office temporarily shut down its unemployment processing system from Saturday afternoon until Tuesday to add a new identity verification component. Officials said they hoped the new component would help weed out fraudulent claims so staff have more time to deal with delayed legitimate claims and address other issues. The reboot of the systems did temporarily cause another issue, when it blocked logins for people whose Social Security numbers began with zero, but Grasso said Tuesday that issue had been fixed.

Grasso said that once someone disputed the tax form, the dispute will be handled by the department of labor in the order received. He said there were no set timelines for how long it would take corrections to be made.

A Frequently Asked Questions page about unemployment tax forms and instructions for disputing a tax form can be found on the department of labor website at dol.ks.gov/ui-faqs/1099g-forms.