Do You Pay Back Unemployment? Here’s What You Need to Know

Millions of people receive unemployment benefits every year, but not everyone understands exactly how they work. And it’s no wonder considering how every state has its own policies and eligibility requirements. However, most people do not have to pay back unemployment unless an error resulted in an overpayment.

What are Unemployment Benefits?

Unemployment benefits, or unemployment insurance, is state-federal program funded by unemployment taxes under the Federal Unemployment Tax Act (FUTA).

Under this federal law, most employers are required to pay both federal and state unemployment taxes each year to the IRS. These taxes go towards funding state workforce organizations.

If you’re an employee, these taxes are not deducted from your wages unless you’re a resident of Alaska, New Jersey, or Pennsylvania. In those states, employers must withhold state unemployment tax from employees’ paychecks.

If you’re not sure about your state’s specific policies or requirements for unemployment insurance, here’s a list of every state’s contact information.

Will I Have to Repay Unemployment Insurance Benefits?

Very few people end up having to pay back their unemployment benefits. This is true even for people who were unemployed but have recently found a new job.

In rare cases, a recipient might have to pay back some of the money they’ve received. This happens for the following reasons

  • Overpayment: Unemployment overpayment can occur for several reasons, including an application error or a mistake the state makes during processing. If this occurs, the state might send out letters requesting the overpaid amount back. These are called a notice of overpayment. It should include the amount of the overpayment.:
  • Employer appeal: A previous employer might appeal to have the money returned, thus requiring the recipient to repay the benefits.
  • Federal taxes: Unemployment insurance benefits are taxable as income, meaning you must report them on your federal tax return. Depending on where you live, you might also have to pay a state income tax. The owed amount could come out of your tax return.
  • Fraud: It’s considered fraud to Intentionally withhold or provide inaccurate information. Possible causes of fraud include working while still collecting unemployment benefits or collecting benefits without actively seeking a job. Any fraudulent payments are subject to a penalty and could result in criminal prosecution.

How Do Unemployment Benefit Payments Work?

The government established the federal-state unemployment insurance program in the 1930s during the Great Depression.

Every state has its own benefits and has its own requirements or limitations. However, most states offer up to 26 weeks of unemployment benefits to those who qualify. These benefits can replace anywhere from 30% to 50% of the unemployed worker’s previous income.

During major economic downturns, the unemployment program is especially useful for keeping people afloat financially. It also helps combat the severity of an economic recession.

How Do I Apply for Unemployment Benefits?

First, file a claim with the unemployment program in the state where you were most recently employed. It’s best to do this as soon as possible since the process is sometimes lengthy.

On average, it takes two to three weeks to receive the first payment from the date you filed the unemployment claim. However, if there’s a problem with your application, processing can take much longer than that. Provide the dates and addresses of your former employer with the application to prevent delays.

In some cases, an employer will file for unemployment benefits on behalf of their staff. This usually only happens if a person is still technically employed but is temporarily laid off due to there not being enough work.

Applying for benefits is a little trickier if you move out of state. However, you can reach out to your current state department to see what you can do. Check with the Department of Labor for a map and list of contact information for each state.

Eligibility for unemployment benefits varies by state. However, qualification usually depends on the following factors:

  • If the person filing is out of a job due to the lack of available work.
  • Whether the individual has worked for an established base period, which is typically the first four of the last five calendar months before you file.

Some states have additional requirements, so check with the Department of Labor before filing a claim. That way, you can ensure you have the best chance of receiving benefits. 

Will My Bank Account Balance Prevent Me From Qualifying?

The balances in your checking and savings accounts do not affect your chances of qualifying for unemployment benefits. Even if you have a large balance, it won’t make a difference. However, you will need to provide an active bank account to set up direct deposit for your benefits checks.

Can I File for Unemployment if I Work for a Nonprofit?

This depends on the nonprofit.

Nonprofits that are registered as 501(c)(3) organizations are typically exempt from paying state unemployment taxes.

For instance, a nonprofit with no more than four employees who work a maximum of 20 weeks during the year don’t have to pay into the system. If the organization chooses not to pay unemployment insurance taxes, its employees will not be able to receive unemployment benefits. Unfortunately, this is true even if the company laid off the employee.

On the other hand, most nonprofits do pay state unemployment taxes, just like any for-profit business. In this case, employees could be eligible for benefits.

Some states do consider nonprofit employees eligible for benefits, even if the organization doesn’t pay unemployment taxes. However, this depends on the state’s criteria.

How Long Do Unemployment Benefits Last?

In most cases, benefits last up to 26 weeks. However, some states offer benefits for either a longer or shorter period. For example:

  • Massachusetts: 30 weeks
  • Montana: 28 weeks
  • Michigan, Missouri, South Carolina, and Idaho: 20 weeks
  • Arkansas and Kansas: 16 weeks
  • Georgia and Alabama: 14 weeks
  • North Carolina and Florida: 12 weeks

State benefits also vary based on certain factors, including:

  • The current unemployment rate in the state
  • An individual’s earnings history
  • Date filed for benefits
  • Whether there’s an emergency or extended federal benefits program in place

What Happens at the Start of a New Benefits Year?

A benefits year is a 12-month period during which an individual can apply for unemployment insurance. When the current benefits year ends, the individual must submit a new claim for benefits based on the weeks they’re either partially or fully unemployed. The state department will then determine their current eligibility based on the recent year’s earnings.

For example, if your benefits year ends on April 21st, you can file a new claim after that date on a weekday. Claims filed on the weekend or Monday will not be processed until Monday night or Tuesday at the earliest.

Never try to start a new benefits year while your current benefits are still active. Also, don’t open a new benefits year until after you’ve filed the final weekly claim on the previous year.

Can I File for Unemployment More Than Once?

There’s currently no limit to the number of claims you can file. When you file for the first time, you’ll receive information regarding how many weeks of benefits you’ll get. Once that date passes, you can apply again or ask for an extension. As long as you’re still eligible, you can do this at the start of each new benefits year.

Still have questions about unemployment? Check out this video to learn more:

Unemployment Overpayment

Unemployment overpayment happens when an individual receives a higher amount of benefits than they should have. When this happens, that person typically has to pay back the extra amount.

Overpayment can occur for a variety of reasons, ranging from a simple error to fraud. Oftentimes, it happens through no fault of your own. 

Benefit Overpayment

Depending on your state, your unemployment benefits could be reduced by 50% for non-fraud-related overpayments and 100% for fraud-related overpayments. This reduced amount will be applied to an overpayment balance.

Originally, there was no way to waive repayment for overpaid benefits, even if they were not your fault. Now, however, the Continued Assistance for Unemployed Workers Act makes it possible for states to waive repayment.

What Happens if I Was Overpaid?

If you’ve received unemployment overpayment, the state unemployment insurance office will send you a letter or notice. This overpayment determination letter will indicate which weeks you were overpaid, by how much, the laws related to overpayment, and why it occurred. It will also give you a deadline for when you must respond.

You can submit an overpayment waiver if you’ve received overpayment through no fault of your own. If that doesn’t work, you might be able to set up a payment plan.

Common errors that result in overpayment include:

  • A mistake in the weekly UI benefits claim
  • General application error
  • Failing to meet eligibility requirements
  • Clerical mistake on the agency’s end

What is an Overpayment Waiver?

According to the U.S. Department of Labor, an overpayment waiver is a “non-fraud overpayment for which the state agency, in accordance with state law, officially relinquishes the obligation of the claimant to repay.”

The department also says that 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 law.”

In other words, if the overpayment was not due to your actions, the state will recognize that. Oftentimes, they won’t require repayment since it would hurt your financial situation.

Overpayment waivers target any unemployment insurance benefits, including those from PUA, PEUC, and FPUC. There’s currently a backlog of these waivers, so be sure to submit one as soon as possible.

Unemployment Insurance Fraud

Unemployment insurance fraud occurs when an individual receives an overpayment of benefits due to:

  • Intentionally withholding information
  • Continuing to receive benefits after returning to work
  • Providing false information in their benefits application
  • Not reporting earnings or reporting false amounts
  • Failing to report any bonuses, severance pay, or other forms of payment.
  • Not looking for a new job or claiming to search without actually doing so

Unemployment insurance fraud can also occur through identity theft, which is not the victim’s fault.

Unemployment insurance fraud can have serious financial ramifications. Large-scale fraud, or receiving over $400 in fraudulent benefits, could also result in wage garnishment, legal action or ineligibility for future unemployment benefits.

Again, rules vary from state to state. Additionally, if you’ve missed a deadline to validate eligibility claims, you might be ineligible for benefits.

How to Pay Back Overpaid Unemployment Benefits

If the state determines that you were overpaid, it will typically send out a notice requesting the surplus back. In the event you’re currently collecting unemployment benefits and don’t request a waiver, the state could deduct what you owe from future unemployment checks.

If you’ve received a notice by mistake, submit an appeal and ask for a hearing as soon as possible. Depending on the case, you could qualify for a waiver or payment forgiveness.

Some states let you pay by credit or debit card, money order, or check. Others will garnish your state or federal income tax refund or lottery winnings to cover what you owe. In extreme cases, a state might pursue civil action in court to collect payment.

What is Pandemic Unemployment Assistance (PUA)?

In 2020, around 40 million Americans received some form of UI benefits. In response to the COVID-19 pandemic, the CARES Act established the following programs:

  • Pandemic Unemployment Assistance (PUA): This program provided financial aid to those who couldn’t work due to the pandemic. Unemployed individuals received up to 39 weeks of benefits. Even those who were not previously eligible for aid, such as gig workers, independent contractors, and freelancers, could receive aid. PUA was in effect from January 27, 2020 to December 31, 2020.
  • Federal Pandemic Unemployment Compensation (FPUC): FPUC provided an additional $600 each week to eligible individuals. Though these benefits are no longer active, they could be used in conjunction with PUA and state UI benefits.
  • Pandemic Emergency Unemployment Compensation (PEUC): This program offered 13 more weeks of UI benefits for a total of 39 weeks. Only those who were eligible for standard benefits could qualify. The program ended in September 2021.

Any money received from these programs is considered taxable and must be reported to the IRS.

Do You Have to Pay Back PUA During the COVID-19 Pandemic?

From March 2020 to February 2021, PUA overpayments totaled $3.6 billion. This was primarily due to the huge rush of individuals seeking aid combined with multiple clerical and application errors.

When it comes to repayment, the federal government has given each state some discretion. In other words, each state determines if it requires repayment. Some states do not pursue reimbursement or offer repayment waivers.

If you’ve received a notice about a PUA overpayment based on an error, file an appeal or request a payment plan.

What is Disaster Unemployment Assistance (DUA)?

Disaster Unemployment Assistance is another program that provides unemployment benefits to those who lost their job due to a presidentially declared major disaster. To qualify, you must:

  • Prove the job no longer exists or you cannot reach it, thus making you unable to work.
  • Have evidence of a disaster-related injury you’ve received that prevents you from working.
  • Be the new head of household after the previous one died in the disaster.

Is There a Downside to Collecting Unemployment?

There are not many major downsides to collecting unemployment. After all, it can help you cover expenses and keep your personal finances and credit on the up-and-up. However, there are a few things worth knowing before you file:

  • You will need to report any benefits as income tax, meaning you might owe taxes.
  • There could be delays when filing, especially if there’s an application error.
  • Benefits only last a certain amount of time, based on state.

There Will Be Delays

Due to the COVID-19 pandemic, many people have had to spend days or even weeks just trying to get through to their state’s unemployment office.

Such slow response times are frustrating and problematic. Even if you have some savings or severance pay, it’s a good idea to apply as soon as possible. That way, you can prevent an even greater financial hardship later.

The Payments Won’t Be Immediate

Once you’ve filed a claim, it can still take several weeks to process and approve it before you receive the first check. Be prepared with all your documentation, including your social security number, W-2 forms, paycheck stubs, and leave statements.

Some states take longer to process applications than others. For example, New York can take anywhere from 3 to 6 weeks. North Carolina, meanwhile, takes an average of 14 days.

Your Benefits Will Be Taxed

Unemployment benefits are taxable as income. This doesn’t mean you’ll have to pay back the benefits, however.

Keep in mind that your state won’t automatically withhold taxes from unemployment benefits. You’ll need to fill out Form W-4V (Voluntary Withholding Request) and give it to the agency handling your benefits request. This form lets you request that your federal income taxes be withheld from payments. Some states also let you request withholding through an online portal.

The average weekly benefit amount is $978, which could bump you into a higher tax bracket. This means you might end up owing more in taxes than you anticipated, so be prepared for that.

You Have to Search for a New Job

While on unemployment, you have to prove that you’ve been looking for a new job. Most states require you to fill out a work search log with a minimum number of “work search contracts” each week. This could be anything from meeting with a prospective employer to turning in an application.

Some states also require claimants to complete a “work search log.” This includes things like the name of the company or contact person. LinkedIn offers job search verification and various unemployment resources, so check out their page.

The Bottom Line

You don’t have to pay back unemployment benefits unless you’ve received an overpayment. Even then, you might be able to request a waiver if the overpayment is not due to your actions.

Keep in mind, though, that you will need to report any payments on your federal tax return. This is because unemployment benefits are considered taxable income. If your state also has a state income tax, you might have to pay that, too.

FAQs

Can You be Denied a Job If You Have Bad Credit?

It is a possibility that you could be denied a job due to the contents of your credit report. Any prospective employer has the right to check your credit. They will see an abbreviated version of your credit report, but not your credit score. They’re allowed to pass you over for a job offer if they don’t like what they find.

What Will Disqualify You From Collecting Unemployment?

There are a few reasons you might be disqualified, including workplace misconduct, misconduct outside of work, turning down an acceptable job opportunity, failure to look for another job, failing a drug test, being unable to return to work, receiving severance pay (but only until the severance payments run out), earning money as a freelance worker or fraud.

Will I Qualify for Unemployment If I Quit My Job?

It’s unlikely, but not impossible. Check your state laws. Some have exemptions for various reasons. If you quit because your employer cuts your hours severely, because workplace conditions are intolerable, for a medical reason, due to domestic violence or so you can care for a family member who is ill, you may still be eligible.

What is PEUC?

Pandemic Emergency Unemployment Compensation was established as an extension for those receiving regular unemployment benefits from their state. Self-employed individuals and independent contractors were not eligible for PEUC benefits. However, PEUC was helpful to those who needed an extension on their regular unemployment benefits and had already exhausted all other options.

What is FPUC?

Federal Pandemic Unemployment Compensation was a supplemental program that provided more insurance benefits to eligible, unemployed individuals. It maxed out at $600 a week. The program ended in July 2020.

What is PUA?

PUA, or Pandemic Unemployment Assistance, was established under the federal CARES Act program in response to COVID-19. People who were not eligible for UI benefits, such as freelancers or gig workers, could receive unemployment benefits through PUA. The program offered up to 79 weeks of benefits to those who’d lost their jobs because of the pandemic.

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