Department of Labor Launches New System to Capture Unemployment Overpayments through Federal Income Tax Refunds
February 24, 2014
For Immediate Release: February 24, 2014
Contact: Julie Rabinowitz, 207-621-5009
Amounts owed from a 10-year lookback will be offset from refunds
AUGUSTA—The Maine Department of Labor is launching a new system to recover unemployment benefit debt from the past 10 years by offsetting federal income tax refunds in partnership with the Internal Revenue Service. The debt resulted from either fraud on the part of the claimant or a claimant’s failure to report earnings while collecting benefits. The department expects to collect hundreds of thousands of dollars over the next year through the Treasury Offset Program (TOPs).
“This new offset offers the department a way to recapture millions of dollars it is owed and return it to the unemployment trust fund,” said Governor Paul R. LePage. “The Department of Labor has improved several of its reporting systems to identify potential fraud more quickly. Fraud prosecution and prevention help us keep taxes lower for employers and preserve benefits for those who truly need them.”
Letters have been sent to people who need to repay benefits for which they were not eligible. The letter warns them that they owe funds, are eligible for this offset and offers the opportunity to pay the department directly or set up a payment plan. In response to this letter, more than 375 people have taken advantage of the payment plan, totaling more than $70,000 in payments.
The department will continue to add interest and other charges to the unpaid debt until the balance is paid in full. The U.S. Department of the Treasury charges a fee to debtors if their federal income tax refund is offset.
TOPs is authorized by the Debt Collection Act of 1982 and the Debt Collection Improvement Act of 1996. The department is launching TOPS by offsetting federal tax refunds but is authorized to offset other types of federal payments in the future.
The principal owed the department will be deposited in the unemployment trust fund where it will be used to pay future unemployment benefits. Fees from penalties and interest are deposited into a separate fund that is used to fund improvements to the unemployment system and cover payments made out of the state’s Wage Assurance Fund.
The Department of Labor actively pursues the collection of benefit overpayments and any associated fines and interest. The collection process usually begins by contacting claimants to request repayment or establish a repayment schedule. The department may offset federal income tax refund payments through TOPS, state tax refunds, lottery winnings, future unemployment benefits or garnish wages to recover the overpayment along with accrued interest and legal expenses.
People who believe that they owe the Department of Labor money related to an overpayment or who believe that they received this letter in error should contact a collection representative at (207) 621-5154 or division.uccollections@Maine.gov. TTY Users should call Maine Relay 711.
Commissioner of Labor Jeanne Paquette explained what constitutes unemployment fraud. “For people claiming benefits, unemployment insurance fraud usually involves someone misrepresenting information to collect benefits,” she said. “An individual may continue to claim benefits after returning to work or while incarcerated. In other cases, individuals might report that they are looking for work when they are not, or they might report having contacted employers in their search for work that they did not actually contact. Some may file claims under false pretenses.”
To identify when people receiving benefits are hired for permanent work or earning wages that may not have been reported, the department cross-matches the list of active claimants against the National Directory of New Hires and against employer-reported quarterly wage data. The department also cross-matches the active claimant list against a list of people incarcerated in state correctional facilities.
On the employer side of the unemployment system, fraud includes intentional misclassification of employees as independent contractors, misreporting worker wages to avoid payment of unemployment taxes and “SUTA dumping,” a rate manipulation practice for obtaining a lower tax rate than a company’s unemployment experience would otherwise allow.
Citizens can report instances of suspected unemployment fraud by phone, email, fax or mail; information is available at http://www.maine.gov/labor/unemployment/fraud.html . Tips can be kept confidential.