What to Do If the Government Wants Your Pandemic Money Back

The COVID-19 pandemic unleashed a wave of life changing consequences including triggering job losses for millions of people overnight. Individuals and families across America lost their income, and in order to survive, many signed up for Pandemic Unemployment Assistance (PUA). Toward the end of 2020, however, it became clear that states mistakenly made payments to some workers who didn’t qualify or overpaid others. Hundreds of thousands of letters were promptly dispatched letting recipients know they would need to return the cash, causing immense anxiety for those who’d already spent the money on rent, bills, and more. The CARES Act allows states to waive reclaiming PUA overpayments in certain cases, but does not require it. Meaning, some people could still be on the hook for thousands of dollars depending on how states choose to proceed. Here’s a look at what to do if the government has contacted you asking for money back.

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If you’ve received a letter demanding repayment of Pandemic Unemployment Assistance benefits, one of the first steps is reviewing your initial application to determine whether all information submitted was accurate. “You must find out whose fault it was for the overpayment. Did the state do it? Or did you complete the application incorrectly?” says Juan Carlos Cruz, founder of New York-based Britewater Financial Group. “You must find out in order to know what’s at stake and how likely it is that you will have to repay the money.” If it’s the state’s fault, they may be able to waive repayment or forgive it based on their error, particularly if you can prove the money was used to pay for living essentials.

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If you believe you were rightfully entitled to all benefits received and an error has in fact been made in requesting the money back, consider appealing your case, says Cruz. You may even want to find a professional who can help with this process. “Seek out legal services or an attorney who has unemployment compensation expertise in your state,” says Cruz. “You may qualify for free or low-cost assistance from a local legal services agency. The legal services can help prove that paying the money back would cause hardship for you and your family.”

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The latest language in the CARES stimulus act grants states the authority to decide that claimants don’t have to return overpayments made in error, says Cruz. “In order to qualify, you must have completed your application correctly, and there must not have been fraud on your application,” says Cruz. “The overpayment must have been an error made by the state’s unemployment office. Also, the state must determine that the repayment of funds would cause further financial hardship.”

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If you choose to appeal a repayment demand based on hardship, make sure you have evidence to support your case. “This may require submitting weekly unemployment benefits payments, along with proof of all current bills and expenses you pay every month including, rent, car, food, utilities, and credit cards,” says Cruz. You may also need to provide bank statements showing how the money was spent. “All of these documents can help build a case and prove how the money was used and how the repayment would cause further hardship for you,” adds Cruz.

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Though you may want to close your eyes and hope the entire dreadful situation magically goes away, pretending you didn’t receive the repayment demand is definitely not a good idea. “You should not ignore these letters and assume that the state will forgive this error no matter who is at fault,” says Cruz.

Under normal circumstances, excess unemployment payments or benefits that were sent to you in error can be waived by state officials. But the Pandemic Unemployment Assistance, which was passed at the federal level, is not structured the same way, explains Cruz. Errors may not necessarily be forgiven. “If you ignore the letters, your wages may be garnished when you return to work or you could face partial reduction or complete reduction of your unemployment benefits. They can also put a lien on your home or a levy on your bank account,” says Cruz.

Though you shouldn’t outright ignore repayment requests, you shouldn’t rush to return the money either. Again, if it can be proven that you didn’t make any mistakes or misrepresentations when filing for the benefits, the money may not need to be returned, says CPA Zach Reece. “The latest coronavirus bill states that asking individuals to pay back the money when it's not their fault is contrary to good conscience,” explains Reece. “If you get a notice asking for repayment, get an attorney first to explore your legal options. If you've already paid the money back, there’s little chance you can reclaim it.” Bear in mind you might also qualify for free or low-cost legal assistance, adds Reece.

If you believe there has indeed been an error in your benefits, be proactive about contacting your state unemployment office to find out how you might be able to repay the money (if you have not already been instructed in writing regarding how to do so.)

“Every state is different, but you must try by any means possible to get in touch with a representative to inform them of your situation,” says Jacob Dayan, CEO and co-founder of Community Tax. “If you’re lucky enough to get through to them, someone should be able to help you sort out the problem. Many states have a benefit overpayment policy of sorts that allows those who were overpaid to pay the money back in a variety of different ways.”

There have been many reports of people trying unsuccessfully to get in touch with their local unemployment office amid the crush of phone calls the agencies are receiving right now. If this is the case, you may also try visiting the agency’s website for further guidance. “Make sure you carefully read through the unemployment office’s site to understand what you must do and how to pay the money back,” says Dayan, of Community Tax. “There should be some helpful information.”

What if you haven’t yet received a letter indicating you’ve been overpaid but the benefits being deposited into your bank account seem a tad too large or somehow inaccurate? Do yourself a favor, and don’t spend all the money. “If you suspect you received too much money, put the extra cash aside so that when the government asks you to refund it, you can comfortably pay it back without having your future unemployment benefits garnished,” says Carol Tompkins, of the global financial-services platform Accounts Portal.

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Given that these payments were made to ease the suffering of those in need during immensely challenging times, causing you more distress is not the intended goal here, says John Davis, of ScoreSense, a business designed to help people better understand their finances. “What you should not do is panic or worry,” says Davis. Contact the office in your state and advise them you took the payment in good faith. Each state will have a system to follow but communicating the fact you took the funds without deliberately trying to defraud the state is definitely a good step.”

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