Unemployment Fraud Penalties | What you Need to Know

Unemployment fraud penalties can come in many forms. Whether you intentionally or unknowingly commit fraud, you are up for both civil and criminal penalties.

Civil penalties usually just involve fines and paying back the excess amount you collected; while criminal penalties can push you to spend time in jail or serve time in prison. Either way, you are still obliged to pay fines, which can reach up to thousands and millions of dollars, if you commit unemployment fraud.

Given the increasing numbers of people who commit fraud, the state and the federal government have come up with several ways to detect and punish offenders. In fact, with the ongoing pandemic exacerbating unemployment fraud, the Department of Labor as well as individual states have made significant strides to curb fraud and caught offenders easily.

So with that in mind, we further discussed some of the things you should know about unemployment fraud as well as the penalties that go along with it.

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What is unemployment fraud?

Claimants and employers can both commit unemployment fraud.

For claimants, unemployment fraud is filing and collecting unemployment insurance claims under false pretense. Unemployment fraud for employers, on the other hand, can include actions such as avoiding tax liability or enabling fraudulent claims.

To such an extent, most unemployment frauds are done intentionally. Any actions or misrepresentations that lead to claimants receiving benefits even when they are not eligible can lead to fraud charges.

Those who file and receive benefits under the unemployment insurance program are legally responsible to adhere to the requirements set by their State as well as the Federal government.

However, it is worth mentioning that there are some cases where you can commit honest mistakes. In this instance, you might not be charged with fraud but you would still be required to pay back the excess money you received.

In any case, whether you intentionally or unintentionally commit fraud, you are still required to pay back the benefits you received.

So to help you avoid scenarios like these, we have listed some examples to help you determine whether you are committing fraud or not.

Examples of Unemployment Insurance Fraud

Going back to work and still collecting unemployment benefits
Doing part-time jobs and not fully disclosing all your earnings to receive higher unemployment benefits
Holding back information and not fully reporting your earnings
Working on a temporary job and collecting unemployment benefits at the same time
Doing unreported employment while collecting unemployment benefits
Claiming unemployment benefits even when you are not actively looking for work
Reporting false information on your jobs search record even when you are not actively looking for work
Withholding information and not reporting that you have declined a job offer
Reporting an inaccurate reason why you left work
Giving your PIN to someone else so that they can receive unemployment benefits
Claiming you are ready and able to work even when you are not (e.g. too sick to go to work, does not have child care, or not in the area where you are supposed to live and work)

What are the penalties for unemployment fraud?

As we previously mentioned, offenders can face both civil and criminal penalties if they are caught committing unemployment insurance fraud. Civil penalties are often done by paying fines while criminal penalties might put you under probation or, in worst cases, inside prisons.

Given that different states administer a separate unemployment insurance program under the laws established by the Federal government, eligibility requirements and the benefit amount might also be different for other states. Therefore, it is only fair to assume that the severity of penalties are also different from states-to-states.

Bearing that in mind, we have listed the penalties you might face if you commit unemployment fraud. Further, we have also included some of the standards for penalties set by the Federal government.

Repayment

If you are a claimant who was overpaid or received excess benefits, then you are legally required to pay back all the excess amount you received. Whether it is not intentional or your former employer successfully contested your claims, you are still obligated to repay the previous amount you received.

In cases where your former employer deemed you ineligible to receive benefits, they might appeal and contest your unemployment claim. If they successfully contested your claim, then you are required to pay back all the unemployment compensation and benefits that you received.

Your overpayments would stay on record until repaid and you might not be eligible to receive unemployment benefits in the future if you do not settle it.

Typically, you would receive a mail notification from your state unemployment office that you have been overpaid. The notice would include information such as the amount you need to pay, penalties (if applicable), reasons for overpayment, instructions on how to repay, and even information on how to appeal.

If you believe the notice is not accurate, then you can file for an appeal as a claimant as well. Through this process, you might be able to ask for a waiver in order to avoid repayment.

But, it is worth noting that you can only apply for a waiver if you were overpaid because of a mistake. If you were overpaid because you give false or incomplete information to the Department of Labor, then you are not eligible to apply for a waiver and you still have to pay back the benefits you received.

Fines

In addition to the repayment that you need to settle, you might need to pay a fine as well.

Federal law requires all states to assess a penalty of not less than 15% of the amount of fraudulent claims. However, some states go over that 15% minimum.

For example, states like Alaska require claimants to repay the overpaid benefits along with a 50% penalty, and states like Minnesota require you to pay a 40% penalty with the repayments if you committed misrepresentation in your unemployment claim.

On the other hand, states like Florida and the District of Columbia only require a 15% penalty in addition to the actual amount of overpayment or fraudulent claims.

With the drastic difference in all states, it is best to check your corresponding State’s unemployment office (or you can just check their website) to accurately assess the fine that you might be required to pay.

Criminal Prosecution

In extreme cases, you might be required to spend time in jail or serve time in prison for unemployment fraud.

Depending on the state where you live, you can either be charged with a misdemeanor (where you often pay fines or spend time in jail) or a felony (where you often pay fines and serve time in prison).

States like Texas routinely prosecute unemployment fraud at the felony level while states like California and Utah might base your charges on the amount you fraudulently claim.

For example, in California, you may be charged with a felony and be put in jail if the amount you fraudulently claim exceeds $950. In comparison to states like Utah, you would be charged with a third-degree felony if the amount you obtain exceeds $1,500 but is less than $5,000.

So in order to avoid jail time as well as paying hefty fines, it is best to consult and have a skilled attorney with you so that you will not face any of these criminal charges.

Probation

In lieu of jail or prison time, courts can send you to a probation term instead. Typically, probation is granted to first-time or low-risk offenders. Although you are not incarcerated, you still do not have the same level of freedom as a normal citizen.

When you are under probation, you are required to follow certain conditions as well as routinely report to a probation officer. Should you fail to meet these conditions, the court may revoke your probation and you might be sentenced to imprisonment.

In states like Texas, there is a special kind of probation called Deferred Adjudication, where the judge suspends your conviction and places you under a probation term instead. Based on the Texas Workforce Commission website, the probation term for deferred adjudication may vary from 6 months to over 10 years. Apart from your probation term, you would also be required to perform community service, make restitution, and pay fines for committing fraud.

Having said that, we highly suggest you consult with an experienced attorney from your state so that you would know whether you can lower your sentence to a probation instead.

Forfeiting future income tax refunds

Should you fail to repay the overpayments or excess benefits you received, the Employment Security Law permits the Division of Employment Security to trim your tax refund to settle the balance you have. This specifically applies to North Carolina but other states do and allow this in their corresponding department as well.

So until your overpayment balance is resolved, you can no longer claim any income tax refund.

Ineligibility to collect unemployment insurance benefits in the future

If you knowingly commit unemployment fraud, you might be denied any unemployment benefits in the future. Apart from that, other states may also deny you of any future benefits until all your penalty weeks are served and paid for.

Since there has been an increasing number of identity theft related to unemployment claims, you should always be cautious and check with your state’s office if you have any unsettled or unaccounted balance. This way, you would not have a hard time collecting your unemployment benefits in the future.

Are there any interests in overpayments?

Interest on overpayments varies from state to state. Some assess your interests based on your outstanding overpayment balances while others do not even have any interest rate.

For instance, fraud overpayments in Texas have an interest charged of 1% per month; while states like Missouri do not have an interest charged however, their fines and penalties can reach up to 100% of the fraudulent amount you claim.

We encouraged you to look at this website to know more about your state’s policy.

How to avoid penalties?

As we previously mentioned, unemployment fraud can take many forms. With that in mind, you should make sure that the information you report to the labor office is always accurate. This way, you would not have to pay any hefty fines or face criminal charges in the future.

We have listed some of the ways on how you can avoid penalties

Track and monitor all your work and income every day
Report your income before deductions, preferably within the week you work and not after you receive your salary*
Report all your sources of income, such as income from your own business or from the contractor work you did
Keep your contact information up to date
Do not request unemployment benefits for any week you traveled outside the US
Stop requesting weekly benefits after you get a full-time job
Pay all your overpayments on time to avoid interest
Beware of unemployment scams
Review your credit report often

*Reminder: The certification week starts on a Sunday and ends on a Saturday. If your payroll week starts on a different day, keep a record of your daily hours worked and income earned to report them to the EDD during the appropriate week.

Apart from that, employers can also face some of the penalties that we have stated above. Having said that, they can also avoid such penalties if they adhere to the guidelines below

Report timely wage records
Provide notice of workers’ right to file a claim
Avoid making false statements or representations

What to do if you are wrongly accused of fraud?

Since the unemployment insurance program is not entirely perfect, there are bound to be errors in the system. Aside from that, other people may also take advantage and use your personal information to claim unemployment benefits under your name.

Here is a recap of what we coverd:

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Should this be the case, we highly suggest you to follow some of these necessary steps in order to rectify the situation

File a written protest or request to reopen your case with the Agency
If you have been a victim of identity theft, you need to report it to the FTC. You can visit www.identitytheft.gov to know more about the reporting process
Seek legal assistance

Keep in mind that the information cited above is not meant to be comprehensive nor should it be construed as legal advice. We still highly suggest you contact an experienced attorney from your State.

Contact Khouri Law today!