Do You Have to Pay Back Unemployment Benefits?

Many states — Connecticut, Colorado, Florida, Illinois and Ohio, to name a few — have found they overpaid unemployment benefits during the past year. Some states have been sending letters to recipients, asking for some of that money back.

Fortunately, unemployment overpayment is a rare problem. But it can happen — and has happened this year.

“We see people completely devastated, overwhelmed, distraught and feeling like they’re about to lose everything. … Then these notices appear. … It’s awful,” says Jaime-Alexis Fowler, founder and executive director of Empower Work, a San Francisco-based national nonprofit that aims to help employees who are struggling with work issues.

So if this is a topic you are fretting over, we’ll unpack the details.

[READ: Is Unemployment Insurance Retroactive — And How Does It Work?]

Why States May Overpay Unemployment Benefits

Out-and-out fraud is one reason, but there are a lot of perfectly innocent reasons a state might overpay someone’s unemployment benefits.

An error on the application. You didn’t mean to, but you make some mistake on your application resulting in a larger unemployment check than you should have received.

The state bungled things. The state didn’t mean to, but something went wrong, and you were overpaid.

An appeal from your former employer. As if you didn’t already have a reason to take your former employer off your holiday card list: It appealed the decision to give you unemployment benefits and won.

In the past year, not surprisingly, the pandemic gets the most blame. According to a recent Government Accountability Office report, from March 2020 to June 2021, state unemployment programs overpaid benefits by $12.9 billion. About $1.3 billion was fraud; the rest, presumably a combination of those three aforementioned factors.

What to Do if You Receive an Overpayment Notice

If you receive a letter notifying you of overpayment, “the first action is to call the number provided on your overpayment notice,” Fowler says. “The wait times may be incredibly long, but connecting directly on the phone is the best option for understanding why the overpayment happened and what you can do.”

And what if the wait time is incredibly long?

Fowler suggests: “If you can’t get through to the number, contact your local state representative, who often has a staff person who can connect to your state’s unemployment office. A third option is to reach out to your local legal aid (office).”

Fowler says that you can look up your local office on the Legal Services Corporation website.

And if you’re wondering, you can call Fowler’s organization, Empower Work. “We support people facing challenges related to work, and unemployment is one of them,” she says.

Empower Work’s peer counselors won’t be able to fix any overpayment, she adds, but they’ll be able to point people to local resources.

[Read: How to Budget for Long-Term Unemployment.]

Do You Have to Pay Back Unemployment Benefits?

Usually you never have to pay back unemployment, except in these weird cases, during these weird pandemic times, where states are sending letters to some workers saying that they’ve been overpaid.

All of that said, as you’re probably aware, you do have to pay taxes on unemployment benefits.

If your state asks you to repay the government, you typically have three options as a response, according to Ron Zambrano, employment litigation chair at West Coast Trial Lawyers, a personal injury firm in Los Angeles.

You repay the unemployment benefits. Maybe it becomes clear that you really do owe the state money. In that case, for many people, the answer is simple. As Zambrano puts it, “If you have no basis to contest the overpayment determination, you pay it back.”

Plead your case. “If you have a basis to contest the determination of overpayment, you can contest the decision, which requires a timely appeal of the decision or conclusion of overpayment,” Zambrano says. “That leads to a hearing with an administrative law judge at the local (Employment Development Department) office.”

That said, don’t get your hopes up, according to Zambrano. “This is a hard one to overcome as these determinations are based on very technical evaluation of data. For example, applicable rates of pay, applicable contributed funds, applicable timing of application, etc. These formulas can be complex.”

Ask for mercy. If you can’t pay your state back, you can’t pay the state back. In which case, Zambrano says, “You can also appeal the decision to say you just don’t have the money,” he says.

If you do this, you’ll probably have an-person hearing with the administrative law judge at an EDD, where you’ll explain your financial situation in detail, according to Zambrano.

That could lead to you receiving a waiver in which you don’t have to repay the overpayment, or you might be asked to pay less back, Zambrano says.

[READ: Unemployment: What to Do if Your Direct Deposit Is Late.]

If You Choose to File an Appeal

Alex Pisani, general counsel and executive vice-president of sales for Engage PEO, a professional employer organization based in Fort Lauderdale, Florida, that provides human resources outsourcing solutions, says that if you don’t have all of your pertinent paycheck information, you’ll want to go back to your last boss or human resources department.

“Employers should provide any information requested by the state, including wage information, dates of employment and whether the individual is still employed in a full-time or part-time capacity,” Pisani says. “The employer should also note if there have been any changes to the employee’s schedule or hours worked, which may affect the employee’s wages during a specific time frame.”

If you have a letter stating that you were overpaid for unemployment benefits, Pisani says you should carefully review weekly earnings that you received and compare it to the amounts you reported to the state for the same pay periods.

If the fault does lie with you, as noted earlier, you can appeal on the grounds of financial hardship. If you’ve done the comparisons and are stunned because your state erred, you need to act fast.

“If work and earnings were correctly reported, the employee has a limited time frame from date of the notice to file a written appeal with the state,” Pisani says. “If the employee doesn’t timely appeal, the determination becomes final, and the amount owed may be subject to garnishment or a civil court judgment if left unpaid.”

Keeping Track of Unemployment Benefits

In general, especially if you’re receiving unemployment benefits right now, it wouldn’t hurt to keep careful records of what you receive. For starters, you’ll need to have those numbers handy when you do this year’s taxes. It also is never a bad idea to keep tabs on what revenue you’re bringing in — and what you’re spending as well.

It’s a bad idea to ignore the problem. If you’re asked by your state to repay unemployment benefits that you can’t pay back, contacting the unemployment office should be at the top of your to-do list. Which, of course, isn’t fair. Being unemployed or underemployed and broke is bad enough. If unemployment benefits somehow make you worse off, that’s the opposite of what it was designed to do.

More from U.S. News

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