What Happens If You Don’t Pay Unemployment Back?

An unemployment overpayment occurs when you are paid more in benefits than you were eligible for. This can happen due to a clerical error by the state, a mistake in how you reported earnings, or a former employer successfully contesting your claim after payments began. When this happens, the state agency will issue a formal overpayment notice demanding repayment. This notice initiates a process with specific timelines and potential consequences, but state agencies have procedures for handling these debts, including repayment options and relief.

Understanding the Overpayment Notice

When you receive a “Notice of Overpayment” or “Notice of Determination,” review it for the total amount owed, the weeks you were overpaid, and the reason for the decision. The notice will also specify whether the overpayment is considered “fraud” or “non-fraud.” A non-fraud overpayment results from an unintentional error, while a fraud determination means the agency believes you willfully provided false or incomplete information to receive benefits.

A fraud classification carries harsher consequences, including fines that can be as high as 50% of the overpaid amount and disqualification from receiving future benefits.

The notice will also contain a deadline, usually 30 days from the mailing date, by which you must either pay the amount due or file an appeal. Failing to respond in time can waive your right to dispute the debt. The document will provide instructions on how to begin the repayment process or how to formally appeal the decision.

Consequences of Non-Payment

Ignoring an unemployment overpayment debt triggers a series of escalating collection actions by the state agency. If you do not pay, the state can take several actions to collect the money owed.

These actions include:

• Intercepting your federal and state income tax refunds through the Treasury Offset Program (TOP) to satisfy the debt.
• Pursuing wage garnishment, a legal process where the agency obtains a court order requiring your employer to withhold a portion of your earnings from each paycheck and send it directly to the agency.
• Intercepting any future unemployment or disability benefits you qualify for and applying them to the outstanding balance until it is paid in full.
• Placing a lien on your property, such as your home, in more severe cases involving large sums or fraud. A lien is a legal claim against your property that can prevent you from selling or refinancing it until the debt is paid.

For cases determined to be fraudulent, the consequences can extend beyond financial penalties. States may pursue criminal prosecution, which is typically reserved for instances of intentional deception. They can also refuse to issue or renew professional licenses or withhold state lottery winnings.

Repayment and Relief Options

Most state unemployment agencies are willing to work with individuals to resolve an overpayment debt. The most direct approach is to contact the agency and arrange a payment plan. This allows you to make smaller, manageable monthly payments over an extended period until the balance is cleared.

For non-fraud cases, another option in many states is an overpayment waiver, which forgives the debt entirely. To qualify, you must prove both that the overpayment was not your fault and that repayment would cause you significant financial hardship. This option is not available in all states, as some require repayment of all overpayments regardless of fault.

Requesting a waiver is different from an appeal; a waiver acknowledges the debt is valid but asks for it to be forgiven. The process involves submitting a specific application with detailed financial information and supporting documents, such as bank statements and household bills. In some situations, an agency might also agree to an “Offer in Compromise,” accepting a lump-sum payment that is less than the full amount owed to settle the debt.

The Appeals Process

If you believe the overpayment determination is factually incorrect—for instance, if you think your wages were calculated improperly or that you were eligible for the benefits you received—you have the right to appeal the decision. Filing an appeal involves submitting a written request to the agency that formally states your disagreement. You should clearly explain why you believe the decision is wrong and provide any evidence that supports your position, such as pay stubs, bank records, or correspondence with employers.

After you file, the case is scheduled for a hearing, often conducted by phone with an Administrative Law Judge. During the hearing, you can present your case, submit evidence, and question witnesses, including representatives from the state agency or your former employer. The judge then issues a written decision. If you are still unemployed, you should continue to certify for benefits while the appeal is pending.