This year's tax season is bringing an extra surprise to many Americans: the news that they were victims of unemployment-insurance fraud that has topped billions of dollars nationwide.

Michael Baird, a 33-year-old marketing manager in Chicago, hasn't lived in Texas for several years. And yet there was a tax form from the state of Texas sitting at his parents' house in Houston, showing that the state had paid him $1,014 in unemployment benefits.

Mr. Baird was among the victims of jobless-benefits fraud who found out when they received a 1099-G tax form noting unemployment compensation, even though they never applied for or received the benefits. The forms, produced by state agencies, are also sent to the Internal Revenue Service. Unemployment benefits are usually considered taxable income, and the IRS uses them to make sure income is reported correctly.

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