Although you might not think of an unemployment insurance overpayment as free money, sometimes you get to keep it -- which can amount to thousands of dollars. However, it is usually safer to repay an overpayment because you do not always qualify for an overpayment discharge. In some cases, the unemployment overpayment can send you to jail.
Offsets
If you receive an unemployment overpayment and still receive unemployment benefits, the agency usually offsets future benefit payments until you repay the entire balance due. Depending on the laws of the state, you may also owe penalties and fees, such as interest on the overdue portion of your unemployment benefits. Penalties are more likely if you received the overpayment due to fraud on your part. The state may offset other benefits payments and your state income tax refund.
Lawsuit
If you refuse to repay your unemployment insurance overpayment, the agency might initiate a lawsuit to recover the funds, charge interest on the judgment and attempt to collect on the legal expenses of the case. The state can record a lien against your property, which prevents you from selling it until you satisfy the debt.
Jail Time
In extreme cases of fraud, such as if you were to create a fake identity to collect checks, the unemployment agency might pursue criminal charges. Unemployment fraud usually qualifies as a felony, so the prison sentence can last years or even decades and come with a fine of tens of thousands of dollars. Also, the charge on your criminal record can prevent you gaining employment in the future. If you commit any fraud, the state bans you from collecting benefits for a few weeks.
Tips
Alert your state unemployment agency as soon as you find work. Unemployment agencies and employers use a national database to track individuals collecting benefits and working. Contact the state unemployment agency about settling the debt so you can avoid penalties and fees. The agency might cancel the debt if you can prove that repaying the overpayment will cause a hardship, such as not being able to afford essentials, or you can include an overpayment in a bankruptcy case if the agency has not filed a lien against your property.