What to Do About Unemployment Overpayment

Losing a job can be financially and emotionally draining. While unemployment assistance can help alleviate some of the stress, what happens when your state overpays you? It has happened.

Many state unemployment systems deliberately use old technology to help prevent fraud, but that can quickly become problematic if the systems are overloaded with requests. That happened when the COVID-19 pandemic shut down the U.S. economy overnight, leading to millions of people losing their jobs. In April 2020, the unemployment rate surged to 14.7%, with 23.1 million workers losing their jobs. While it has since come down to 6% in March 2021, that’s still 2.5% higher than February 2020, right before the pandemic, and 9.7 million people remain jobless.

COVID-19 and Unemployment Insurance

The government scrambled to get relief packages up and running when the pandemic shut down the economy, but most state unemployment offices were understaffed and ill-equipped from a technology standpoint to handle the barrage of requests for help. Add to that the fact that many first-time unemployed workers were thrown into a panic of trying to figure out if they qualified and what they had to do to get the funds needed just to survive. The combination led to months of confusion, chaos, and long wait times. For some, it also resulted in the overpayment of benefits.

To put the situation in perspective, a record 3.28 million people filed for unemployment assistance in the week ending March 21, 2020, up from just 282,000 in the prior week. State unemployment offices were handling roughly one million new claims every week in 2020, resulting in more than $580 billion of unemployment insurance benefits being paid out to some 40 million Americans. As of October 2022, California alone has processed 28 million claims and paid out $184 billion in total benefits since March 2020.

In addition to regular unemployment benefits, many Americans who lost their jobs due to the pandemic and normally would not qualify for unemployment did so under the government’s Pandemic Unemployment Assistance (PUA) program, which was extended several times before ultimately expiring on September 6, 2021. This further complicated a system that was already struggling to keep up with demand and led to billions of dollars being overpaid.

How Much Has Been Overpaid?

According to the U.S. Department of Labor Statistics, states reported more than $3.6 billion of PUA overpayments from March 2020 through February 2021. In addition, states flagged overpayments of regular unemployment insurance totaling $12.9 billion from April 2020 through March 2021, according to a July 2021 report from the U.S. Government Accountability Office.

Historically, the bulk of overpayments have been tied to unintentional errors on the part of filers or the agencies with which they are filing. Some reasons that overpayments occur are:

• Reporting incorrect earnings (such as gross instead of net)
• Incorrect wage history
• Applying when unqualified (even if initially approved)
• Application inaccuracies
• Fraud

What About Fraud?

Fraud generally accounts for only a small portion of unemployment overpayment. The New York State Department of Labor said it had identified more than 425,000 fraudulent claims during the pandemic and prevented $5.5 billion of payments from being doled out to fraudsters. That’s not small change, but as the state paid $65 billion to more than four million New Yorkers from March 2020 through January 2021, it’s still less than 11% of the total number of legitimate claims paid.

As the U.S. government scrambled to roll out relief programs and expand unemployment, systems were flooded with new claims that created the perfect storm for fraudsters. The U.S. Department of Justice created an anti-fraud task force in 2020 that charged fraud or money laundering in a dozen cases specifically tied to unemployment insurance.

If that doesn’t sound like much, then consider this: One man was recently arrested and charged with allegedly using over 250 stolen identities to defraud the New York State Department of Labor of $1.4 million in unemployment benefits.

Information on an Unemployment Overpayment Notice

There are several items you should make note of when you receive an unemployment overpayment notice. The notice will state the amount of money that the unemployment agency overpaid you. Take caution if the notice does not state the amount of the overpayment.

The notice should also explain why the overpayment occurred. This could be due to a mistake on your side such as forgetting to record income or job, or to an error on the part of the unemployment agency. In any case, expect to see some explanation of the situation causing the overpayment. In relation, the notice will also outline the period or dates that the overpayment occurred.

Last, the notice will likely include information on how to repay the overpayment, such as any payment dates and the amount of each payment. The notice will also outline remittance information on where and how to send payment. Note that even though other options may not be listed, there is important information below on other options you may have.

What to Do If You Receive an Overpayment Notice

But what about people who are just caught in the middle of an antiquated system that is ill-equipped to handle requests from the newly unemployed? Let’s posit that you’ve received a notice from your state unemployment office claiming that you’ve been overpaid by thousands of dollars. There was no red flag. You followed all the steps required in your initial filing, have been diligently certifying your claim weekly, and have been receiving the assistance that you thought was due to you. Now you’ve been told that you owe some—or all—of that back. What can you do?

• File an appeal: If you feel that you received the notice in error, go to your state unemployment website to request a hearing.
• Request a waiver: If the overpayment is legitimate, then you may be entitled to either a waiver or forgiveness of it. Either way, you may only have a small window of time to request such an action, so be sure to check with your state’s requirements.
• Repay the money: Either contact your state department of labor to work out a repayment plan or simply pay the amount back in full.

Regarding Waivers

According to the U.S. Department of Labor, a “state may authorize a waiver when or if the overpayment was not the fault of the claimant and requiring repayment would be against equity and good conscience or would otherwise defeat the purpose of the UI [unemployment insurance] law.”

Until recently, that did not include PUA, which is a federal program. However, under the latest stimulus bill, states may waive overpayment of PUA if “(A) the payment of such pandemic unemployment assistance was without fault on the part of any such individual; and (B) such repayment would be contrary to equity and good conscience.”

While states have been given the ability to grant waivers, it doesn’t mean that all of them will, so it is important to check your state’s labor department rules as soon as possible. The rules are constantly changing, and there are several bills making their way through different state legislatures.

One thing you should do is act quickly. Gather any records, screenshots, statements, or notes that document your case. State labor departments can (and often will) automatically begin garnishing any future unemployment or other wages. Even if the finding of overpayment is wrong, mistakes are not always easy to untangle, and you still may wind up having money garnished.

Pushing for Change

While the latest stimulus bill allows for both state and federal nonfraudulent overpayments to be waived or forgiven, it’s up to the states to make that happen. For example, Virginia, which had been among the states that did not forgive overpayments, recently approved legislation that would allow for “the repayment of an overpayment of benefits waived where the claimant is at no fault for the overpayment and the repayment would be contrary to equity and good conscience during specified benefit weeks that occurred during the COVID-19 health pandemic.” However, this remains a temporary measure that is only valid from March 21, 2020, through July 3, 2021.

The New York State Department of Labor recently announced on Twitter that “in April and May of 2020, a small portion of claimants received duplicate payments.” It’s been widely reported that the department overpaid more than $114 million in benefits due to errors on its part. The Twitter announcement sparked a backlash online, leaving many claimants scrambling for answers.

It also prompted 12 state senators to send a letter urging the department to enact a policy of waiving or forgiving overpayments. “The collection of unemployment overpayments is a particularly troublesome burden on individuals during the ongoing pandemic and economic crisis,” they wrote, adding: “At a time when it appears that the New York State Department of Labor is still overwhelmed by volume of current claims, prioritizing departmental resources on collecting overpayment could be reconsidered.”

While many states are trying to take action to address the overpayment and waiver and forgiveness issues, it’s unclear how these policies will be enacted and how long they will last.

The Bottom Line

For a multitude of reasons, you may receive an overpayment notice of benefits. If you do, review the notice carefully to make sure you understand why the overpayment occurred, how much was overpaid, and what financial liability you may have. You may always consider appealing the notice or requesting a waiver for any funds you've already collected you may owe back.