2020 Taxes: Pandemic Payments, Fraud, What Consumers Need To Know

Consumers, who faced the gamut in 2020, are now heading into tax season. Here are some things Americans should watch out for when filing their 2020 taxes.

Economic assistance during COVID-19

The pandemic, needless to say, changed a lot of things in the lives of Americans and, indeed, everyone around the world. Many lost loved ones, and in the cascading economic chaos caused by the still-unfolding disaster, just as many lost their jobs, homes, and livelihoods.

For some consumers, the chaos may have been at least partially offset by expanded unemployment payments, stimulus checks, and other financial assistance from the federal government, including in the most recent stimulus bill signed into law by President Biden, the American Rescue Plan. That help did, of course, cause some changes to the way taxes will work this year. 

Fraud is a problem

In March 2020, then-president Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act into law, providing, among other things, a $600 increase in unemployment insurance benefits on top of whatever was already being paid out by states. 

That increase expired in July, and was replaced with a $300 unemployment increase in December’s stimulus bill that was originally set to expire in March, then was extended through September in the American Rescue Plan. The enhanced unemployment benefits, while imperfect, undoubtedly helped millions, but they also opened up the door for something else – fraud.

With unemployment checks suddenly much larger than they used to be, the Labor Department said there were more than $60 billion in illegitimate unemployment payouts across the country, as much as 10 percent of unemployment benefits paid during the pandemic.

California, for example, reported more than $11.4 billion in unemployment benefits paid during the pandemic, according to the Los Angeles Times in January.

“The massive sham springs from prior identity theft from banks, credit rating agencies, health care systems and retailers,” the Associated Press reported last month. “Fraud perpetrators, sometimes in China, Nigeria or Russia, buy stolen personal identifying information on the dark web and use it to flood state unemployment systems with bogus claims.”

Although the American Rescue Plan enacted in March made the first $10,200 of unemployment benefits tax-free for those earning under $150,000 in 2020, the prevalence of unemployment fraud could still mean that, in the event that one’s identifying information was used for a fraudulent unemployment claim, the average worker could find themselves on the hook for a tax bill on benefits they never saw.

The IRS, taking note of the problem back in January, told taxpayers who receive a Form 1099-G for unemployment benefits they did not receive to contact their state’s unemployment agency for a corrected form. In the event that one is unable to get a corrected form from their state in time to file their taxes, the IRS said taxpayers should still file an accurate return, “reporting only the income they received.”

The IRS recently extended the tax filing deadline to May 17, so at any rate, taxpayers do have some extra time to get the corrected forms they need.

An Identity Theft Affidavit, or Form 14039, is not required in the event a taxpayer received an incorrect Form 1099-G, the IRS said – that form is only needed when a taxpayer’s return is rejected because a return using their social security number has already been filed.

Don’t panic about how much you were paid for gig work

With so many out of work, turning to gig work for companies like Uber or Lyft was a common strategy for many Americans who had to find a way to pay their bills.

Taxpayers might be shocked at first to see how much they made on 1099-K forms received for working as contractors, but the situation is more complicated than it would seem – and won’t result in a ridiculous tax bill.

One man, Dwain Lorditch, told Florida news station WFLA that he was unpleasantly surprised to see his 1099-K showed he made more than $70,000 working for Lyft during 2020 when he only ever saw about $38,000.

“I can’t see paying the taxes on that when I didn’t make it,” he told the news station.

Those 1099-K forms report gross receipts, though – all of the income collected from giving Uber or Lyft rides over the course of the year, even though part of that income went to the company, not to the worker, says WFLA. It may be up to the worker and their tax preparer to figure out what they were paid and what went to the company, however.

Deadlines, deadlines, deadlines

While the IRS may have extended its tax deadline to May, surely a welcome shift considering all of the changes over the last year, that does not mean deadlines for filing state taxes necessarily have changed.

Currently, most states – 35 so far, according to the American Institute of Certified Public Accountants – did follow suit and push back their filing deadlines to May 17. Another two states, Iowa and Maryland, pushed back their deadlines even further into the summer. 

However, New Hampshire and Hawaii both announced they will not be changing their state tax filing deadlines of April 15 and April 20, respectively, though Hawaii does grant an automatic six-month filing extension if the taxpayer is owed a refund or pays the properly estimated tax amount by the April 20 date. Idaho’s state legislature, meanwhile, has not yet voted on whether to extend its tax deadline. The legislature will take up the matter when it reconvenes on April 6.

Be aware of data breaches

Cybercriminals who obtain personal information using fraudulent “phishing” emails, malware attacks, hacks on big companies, or other methods can do things like illegitimately collect unemployment benefits – as has happened often this year – or file fake tax returns.

Anyone can be affected by a data breach. CNBC reports that one out of every 10 people are victims of identity fraud each year. Learn how to protect yourself here.

Top Class Actions is covering the 2020 tax season to help keep consumers informed, but you should be sure to discuss your unique situation with a qualified tax preparer.

Are you facing any 2020 tax issues? Tell us about it in the comment section below!

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