In most situations, you won’t need to pay back unemployment benefits. If you meet the eligibility requirements, the benefits are yours. That said, there are some exceptions, such as in the event of an overpayment. You’re also usually required to pay taxes on the unemployment benefits you receive. This article will explain how unemployment benefits work and when you might be required to pay some of your benefits back.
Written by Attorney Kimberly Berson.
Updated August 24, 2021
Many Americans found themselves out of work when the government temporarily shut down non-essential businesses due to the coronavirus pandemic. This left millions of Americans relying on unemployment insurance benefits (UI benefits) to support their families.
If you were one of those Americans, you may be wondering, “What’s next?” When you get a new job, will you have to pay back the unemployment insurance benefits you received? Generally speaking, no, you don’t have to pay them back. But, there are two circumstances where you will be required to pay back at least some of the UI benefits. This article will explain how unemployment benefits work and when you might be required to pay some of your benefits back.
Unemployment Benefits Are, For The Most Part, Yours To Keep
Unemployment insurance benefits (UI benefits) are benefits that belong to you. The unemployment insurance program is a state-run program with oversight from the U.S. Department of Labor. Employers fund the program by paying a federal unemployment tax. Employers also pay a state unemployment tax.
UI benefits are intended to support workers who have lost a job through no fault of their own. The benefit payments are provided to unemployed workers to help pay for rent, food, and other living expenses until they get a new job. In most cases, state laws prohibit a garnishment of UI benefits. This is because they understand that the recipient needs the benefits to pay for necessities.
How Do You Apply For UI Benefits?
To receive UI benefits, you’ll need to file an unemployment claim with the unemployment insurance division of your state’s department of labor. Each state has an unemployment program. Each state has its own rules about how much unemployment benefits a worker is eligible for, how long the benefits last, and whether the worker is eligible to apply for benefits.
The state government pays the UI benefits to the unemployed workers. The recipient of UI benefits is called a claimant. Typically, claimants are required to have worked for a certain length of time and to have earned a certain wage before they are eligible to receive UI benefits.
Claimants are required to do certain things to keep receiving their benefits. They usually need to certify that they have been job hunting while they are receiving UI benefits. Many of these requirements were placed on hold during the COVID-19 pandemic. Typically, claimants who remain unemployed are granted UI benefits for 26 weeks. This eligibility period was extended during the coronavirus pandemic.
After you apply for unemployment benefits, you will be notified of the full amount of unemployment benefits you can receive. Typically, the benefit amount is paid to you in weekly benefit payments. The benefit amount is based upon a percentage of your earnings. If you receive Social Security, this might affect the amount of UI benefits you will be entitled to receive.
Do All People Get Unemployment Benefits?
Not all people qualify to receive UI benefits. People who voluntarily leave their job, are looking for their first jobs, or are trying to get a job after leaving the workforce for a while don’t usually qualify. Self-employed people, independent contractors, and students usually aren’t eligible either.
Special Coronavirus Relief
During the coronavirus pandemic, the federal government passed the CARES Act and developed new benefit programs to expand UI benefits. Some programs included the Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) programs.
PUA was enacted to help workers who don’t typically meet the requirements to get UI benefits. This program provided up to 79 weeks of unemployment benefits if you were unable to work because of the coronavirus pandemic. PEUC was available to people whose regular unemployment benefits expired or were about to expire. Claimants were enrolled in the program automatically after they reached their maximum claim weeks for the unemployment claim.
The CARES Act also extended the duration of UI benefits and increased the benefit payments by $600 per week through July 31, 2020. This enhanced weekly UI benefit payment went down to $300 after July 31, 2020.
Disaster Unemployment Assistance
Some people may receive benefits under the federal program called Disaster Unemployment Assistance (DUA). This program provides unemployment benefits to individuals who have become unemployed due to a presidentially declared major disaster. DUA benefits are available to unemployed workers and self-employed people. To be eligible to receive DUA payments:
Your job must have been lost or interrupted because of a presidentially declared disaster; and
You can’t be eligible for regular unemployment insurance benefits.
Paying Back Unemployment
As noted above, if you receive UI benefits, that money is typically yours to spend on living expenses while you’re unemployed. It’s important to be aware of how taxes and overpayments work with these benefits and how to repay benefits if necessary.
Taxes On Unemployment Insurance Benefits
Most people are required to pay federal taxes. Even unemployed people pay federal taxes on the unemployment benefits they receive. The coronavirus changed this a bit. The American Rescue Plan, enacted on March 11, 2021, excludes a certain amount in unemployment benefits from taxes.
If your adjusted gross income is less than $150,000, then you don’t have to pay federal taxes on unemployment insurance benefits of up to $10,200. This only applies to unemployment benefits that you received in 2020. If you are married, each spouse doesn’t have to pay federal taxes on unemployment benefits of up to $10,200.
Since unemployment benefits are taxable income, you can include them as income on a credit card application. When you lose a job, credit cards can help you buy everyday items when you might be short on cash.
How An Overpayment Of Unemployment Insurance Benefits Happens
If you receive unemployment insurance benefits that you aren’t entitled to, a notice of overpayment will be sent to you. The notice will request that you return the amount of the overpayment. There can be several reasons why you received these unearned benefits. You may have mistakenly given incorrect information to the state unemployment office.
If you get a job and don’t notify the unemployment office that you’re working, you may receive an overpayment as well. While you often can work part-time and still receive UI benefits, your weekly benefit amount will usually be decreased based on those earnings. Even if you do report any hours worked, there could be a clerical error that results in an overpayment, so it’s good to check your weekly deposits.
How Repayment Works
If you were overpaid in benefits, the unemployment insurance office will contact you. You will receive a written notice in the mail advising you that you received a benefit overpayment. The notice will give you instructions on how to pay the amount due. Penalties may also be imposed.
If you don’t pay back overpaid benefits, they can be collected from your state or federal income tax refunds. If you owe an overpayment, it may also affect whether you receive UI benefits in the future. Or those benefits may be reduced to account for a previous overpayment that wasn’t repaid. You can contest an overpayment determination by filing an appeal. The Benefit Payment Control Unit of the State Department of Labor investigates and prosecutes benefit overpayments.
You can pay the overpayment in full or request a repayment plan. A payment plan allows you to pay in installments. If you can’t afford to pay back the overpayment, you might be eligible for a waiver. Claimants who have received an overpayment of benefits may request a waiver from repayment if the following are met:
The claimant wasn’t at fault for the overpayment; and
Recovery of the overpayment would be contrary to equity and good conscience.
Repayment of an overpayment would be “contrary to equity and good conscience” if the repayment would cause an extraordinary financial hardship. Extraordinary financial hardship would leave the claimant without the ability to pay for housing, food, and/or medicine.
The claimant would also have to show that the overpayment was not their fault. Claimants who give false information or intentionally omit information to the unemployment office won’t qualify for a waiver.
Many states require claimants to report any income that they receive, including lottery winnings. A failure to report income may be considered an intentional omission of information. Additionally, the claimant would have to prove that they weren’t aware that they were receiving an overpayment. So, people will only be considered for an overpayment waiver if they are free of any fraud or fault in receiving the overpayment and weren’t aware of the overpayment.
If you want to find out where and how to pay the overpayment, you can check the frequently asked questions (FAQ) on your state’s Department of Labor website. The Department of Labor does not accept credit card payments. It accepts checks or money orders. Typically, you’ll need to send the payment to your state’s Department of Labor, Unemployment Division at a P.O. box address.
Keeping Track Of Your Unemployment Benefits
It’s a good idea to keep track of all the paperwork associated with your unemployment benefits. Take screenshots of online documentation. Keep receipts for the unemployment you receive. Make sure you know how much you are entitled to receive. If you are receiving more than you are supposed to receive, you will be required to return the overpayment. So, it is smart not to spend that money.
It’s a good idea to put the overpayment in a separate bank account to keep yourself from spending it. If there is an error, you can contact the unemployment office. You can also ask your state-elected officials for help. It is their job to make sure their constituents receive the government benefits they’re eligible for. You can also contact a private attorney for help.
In most situations, you won’t need to pay back unemployment benefits. If you meet the eligibility requirements, the benefits are yours. That said, you’re usually required to pay taxes on the unemployment benefits you receive. So, make sure you set aside some money to pay these taxes. Keep track of your unemployment benefits to make sure you don’t have surprises down the road.
If you are notified by an unemployment office that you were overpaid benefits, you should have evidence to appeal that determination if you believe that it has been made in error. If you are required to pay back an overpayment, you should explore whether you are eligible for a waiver. If you aren’t eligible for a waiver, you may look into whether you can repay the overpayment through a payment plan.