What to Do About Unemployment Overpayment

Due to the COVID-19 pandemic, some errors were made

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.

Key Takeaways

  • It’s not uncommon for states to overpay unemployment benefits.
  • Only a small fraction of overpayments are due to fraud.
  • The COVID-19 pandemic sparked a flood of claims and new relief programs that state unemployment systems were ill-equipped to handle.
  • Many states are scrambling to enact policies for waiving or forgiving legitimate overpayments, rather than automatically clawing them back.

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 September 2021, California alone has processed 24.5 million claims and paid out $173 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.

11%

The approximate percentage of unemployment insurance claims that were fraudulent in the state of New York during the pandemic.

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.

If you have received an overpayment of unemployment insurance and want to file a waiver, then you should act quickly, as state labor departments automatically start to garnish your future income or unemployment benefits.

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.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. U.S. Bureau of Labor Statistics. “Employment Situation News Release - April 2020.” Accessed Sept. 15, 2021.

  2. U.S. Bureau of Labor Statistics. “Employment Situation Summary - March 2021.” Accessed Sept. 15, 2021.

  3. U.S. Department of Labor. “Unemployment Insurance Weekly Claims,” Page 1. Accessed Sept. 15, 2021.

  4. The Century Foundation. “The Case for Forgiving Taxes on Pandemic Unemployment Aid.” Accessed Sept. 15, 2021.

  5. Employment Development Department, State of California. “Unemployment Benefits Data.” Accessed Sept. 15, 2021.

  6. U.S. Congress. "H.R.1319 - American Rescue Plan Act of 2021." Accessed Sept. 15, 2021.

  7. U.S. Department of Labor. “U.S. Department of Labor Publishes Guidance on Pandemic Unemployment Assistance.” Accessed Sept. 15, 2021.

  8. U.S. Government Accountability Office. “COVID-19: Sustained Federal Action Is Crucial as Pandemic Enters Second Year; Unemployment Insurance Programs.” Accessed Sept. 15, 2021.

  9. U.S. Government Accountability Office. "COVID-19: Continued Attention Needed to Enhance Federal Preparedness, Response, Service Delivery, and Program Integrity," Page 160. Accessed Sept. 15, 2021.

  10. New York State Department of Labor. “The New York State Department of Labor Stops Fraudsters from Stealing More Than $5.5 Billion in Unemployment Benefits During Covid-19 Pandemic.” Accessed Sept. 15, 2021.

  11. U.S. Department of Justice. “Department Of Justice Is Combatting COVID-19 Fraud But Reminds The Public To Remain Vigilant.” Accessed Sept. 15, 2021.

  12. U.S. Department of Justice. “Defendant Charged in $1.4 Million Covid-19 Fraud Scheme.” Accessed Sept. 15, 2021.

  13. Commonwealth of Massachusetts. "Pandemic Unemployment Assistance (PUA) Overpayments." Accessed Sept. 15, 2021.

  14. U.S. Department of Labor. “Unemployment Insurance Overpayment Waivers.” Accessed Sept. 15, 2021.

  15. U.S. House of Representatives Rules Committee. “Text of the House Amendment to the Senate Amendment to H.R. 133,” Page 1932. Accessed Sept. 15, 2021.

  16. U.S. Department of Labor. “Comparison of State Unemployment Insurance Laws,” Pages 149-161. Accessed Sept. 15, 2021.

  17. U.S. Department of Labor. “Comparison of State Unemployment Insurance Laws,” Pages 150–153. Accessed Sept. 15, 2021.

  18. Virginia Employment Commission. “HB 2040 Overpayment Waiver.” Accessed Sept. 15, 2021.

  19. Twitter. "@NYSLabor, 4:46 p.m., April 16, 2021." Accessed Sept. 15, 2021.

  20. New York State Senator Liz Krueger. “Senators Call For State Department Of Labor To Forgive Unemployment Overpayments.” Accessed Sept. 15, 2021.

  21. Scribd. “Letter to Commissioner Reardon Regarding Unemployment Benefits Overpayments.” Accessed Sept. 15, 2021.

Take the Next Step to Invest
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.
Service
Name
Description