If someone fraudulently obtained unemployment benefits in my name, do I owe Kansas income tax on it?

Plain-English summary

Kansas Notice 21-20 explains that victims of identity theft do not owe Kansas income tax on compensation that was fraudulently obtained in their name but that they never received.

The law. During the 2021 session, both Senate Bill 47 and Senate Bill 50 added provisions on this point:

• New Section 10 of Senate Bill 47 provides that, notwithstanding any other law, for any individual whose identity was fraudulently used to secure any type of compensation, if the individual never received it, the compensation is not gross income and is not taxable for Kansas income tax purposes -- after the Department of Revenue determines the compensation was obtained fraudulently by another individual. It also directs the Department to provide a method for taxpayers to report that they were victims of identity-theft fraud that resulted in income being reported to the IRS, including the amount if known.
• New Section 5 of Senate Bill 50 provides the same treatment specifically for unemployment compensation, with the determination made by the Department of Labor.

How a victim reports it. A person whose identity was fraudulently used to obtain unemployment or other compensation paid to someone else may receive a Form 1099 (for example, from the Kansas Department of Labor or another payer). The income on that Form 1099 should not be reported on the individual's Kansas income tax return. If the amount was reported on the individual's federal Form 1040 and is included in federal adjusted gross income, the individual should show it as a subtraction modification on Kansas Schedule S, Part A. The Department said additional information about reporting the fraud would be posted on its website.

What this means for you

Identity-theft victims

• If someone used your identity to obtain unemployment or other compensation you never received, that income is not taxable in Kansas.
• Do not report the amount from a Form 1099 for benefits you never got; if it is in your federal adjusted gross income, subtract it on Kansas Schedule S, Part A.

Tax preparers

• Watch for clients who receive a Form 1099 for benefits they never received -- exclude that amount from Kansas income via the Schedule S, Part A subtraction modification.
• The exclusion applies once the Department of Revenue (or, for unemployment benefits, the Department of Labor) determines the compensation was fraudulently obtained by another person.

Common questions

Do I owe Kansas tax on unemployment benefits stolen in my name? No -- if your identity was fraudulently used to obtain the benefits and you never received them, they are not taxable for Kansas income tax purposes.

What if I got a Form 1099 for income I never received? Do not report it on your Kansas return; if it is included in your federal adjusted gross income, subtract it on Kansas Schedule S, Part A.

Who determines that the compensation was fraudulent? The Department of Revenue for compensation generally, or the Department of Labor for unemployment compensation.

Which laws created this exclusion? New Section 10 of Senate Bill 47 (2021) and New Section 5 of Senate Bill 50 (2021).

Citations and references

• Senate Bill 47 (2021), New Section 10 -- fraudulently obtained compensation the victim never received is not gross income and not taxable for Kansas purposes, after the Department of Revenue's determination.
• Senate Bill 50 (2021), New Section 5 -- same treatment for unemployment compensation, after the Department of Labor's determination.
• Kansas Schedule S, Part A -- where a victim reports the amount as a subtraction modification if it was included in federal adjusted gross income.

Source

• Landing page: Kansas Department of Revenue Policy Information Library
• Original document: Notice 21-20

Original ruling text

Policy and Research
109 SW 9th Street Phone: 785-368-8222
PO Box 3506 Fax: 785-296-1279
Topeka KS 66601-3506 www.ksrevenue.org
Mark A. Burghart, Secretary Laura Kelly, Governor

                                       NOTICE 21-20

  EXCLUSION OF COMPENSATION FRAUDULENTLY OBTAINED BY ANOTHER
                            PERSON
                                      (AUGUST 9, 2021)

   During the 2021 Legislative Session Senate Bills 47 and 50 were passed and signed into law.

These Bills include new sections that provide an individual whose identity was fraudulently used
to obtain unemployment compensation, or other compensation, which was never received by the
individual, need not include the compensation in their income for tax purposes. Such
compensation / benefits are specifically deemed not taxable for Kansas income tax purposes. New
Section 10 of Senate Bill 47 provides:

         New Sec. 10. (a) Notwithstanding any other provision of law, for any individual
   whose identity was fraudulently used to secure any type of compensation, if such
   individual never received such compensation, such compensation shall not be
   considered gross income and shall not be taxable for Kansas income tax purposes after
   determination by the department of revenue that the compensation was obtained
   fraudulently by another individual.
         (b) The department of revenue shall provide a method for any taxpayer subject to
   the Kansas income tax act to report to the department of revenue whether such taxpayer
   was a victim of fraud due to identity theft and whether such fraud resulted in the
   reporting of any income to the federal internal revenue service. The report shall
   include, but not be limited to, the amount of the income reported to the federal internal
   revenue service due to fraud, if known.

Similarly, New Section 5 of Senate Bill 50 provides:

         New Sec. 5. Notwithstanding any other provision of law, for any individual
   whose identity was fraudulently used to secure unemployment compensation, if such
   individual never received such compensation, such compensation shall not be
   considered gross income and shall not be taxable for Kansas income tax purposes after
   determination by the department of labor that the benefits were obtained fraudulently
   by another individual.

   An individual whose identity was fraudulently used to obtain unemployment compensation,

or other compensation, which was paid to someone other than themselves, may receive a Form
1099 from the Kansas Department of Labor, or from another payer. If so, the income shown on
the Form 1099 should not be reported on the individual's Kansas income tax return. If the income
shown on the Form 1099 is reported on the individual's federal 1040 and is included in federal

adjusted gross income, the amount of income shown on the Form 1099 should be shown as a
subtraction modification on Kansas Schedule S, Part A.

 Additional information regarding the reporting of fraud to the Department of Revenue will

soon be posted on the Department's website.

                               TAXPAYER ASSISTANCE

 Additional copies of this notice, forms or publications are available from our web site,

www.ksrevenue.org. If you have questions about this Notice, please contact:

                            Taxpayer Assistance Center
                           Kansas Department of Revenue
                           Scott Office Building, 1st Floor
                                  120 SE 10th Ave
                                   P. O. Box 3506
                              Topeka, KS 66601-3506
                                Phone: 785-368-8222
                                 Fax: 785-291-3614