Congress Should Incentivize States to Recover Fraud Overpayments


As hardworking American taxpayers continue to reel financially from the effects of the pandemic, they are seeing their paychecks stretched thinner and thinner due to increases in inflation and the cost of living. It’s now time for a renewed push to ensure their tax dollars going toward unemployment insurance are spent wisely, judiciously — and accurately. 

According to a Congressional Budget Office analysis, data from the Department of Labor says that states had identified roughly $3 billion in fraudulent overpayments among the Federal Pandemic Unemployment Compensation, Pandemic Unemployment Assistance, and Pandemic Emergency Unemployment Compensation programs. States have recovered only about $130 million so far. For every dollar they’ve collected, about $23 already identified dollars remain overpaid. 

Those estimates are pretty conservative compared to the total fraud for which taxpayers are on the hook. The Office of Inspector General at the Department of Labor has testified to $191 billion in improper payments from pandemic-related unemployment benefits. Meanwhile,, a private company many states use to identify fraud, estimated the total fraud was closer to a staggering $400 billion

Clearly, the current system to deliver and recuperate these funds isn’t working.

The House of Representatives is poised to vote soon on a bill revamping how the federal government funds efforts to investigate unemployment insurance fraud. Under H.R. 1163, Congress would reallocate funding for federal Department of Labor programs created in the American Rescue Plan of 2021 to a better alternative. Congress initially allocated these dollars for program integrity. However, the administration receives the funding without performance-driven incentives, so taxpayers haven’t seen results.

The Protecting Taxpayers and Victims of Unemployment Fraud Act would change how the federal government funds efforts to recover money that the government inaccurately gives out. Under the proposal authored by House Ways and Means Chairman Jason Smith, House Oversight and Accountability Chairman James Comer, and committee members, a new incentive structure would be created to allow states to keep 25 percent of the money they recover from PUA overpayments. These rescued taxpayer dollars could then be invested in ongoing programs to encourage integrity and fraud prevention in the unemployment system.

Importantly, this proposal would put fraud investigatory funding closer to those people who have identified where there were overpayments. Going forward, this will help create a more efficient system for those actually implementing our unemployment programs. States can then address where there have been problems in the past by learning from situations where there were overpayments and correcting those going forward.

National Taxpayers Union is hopeful to see these changes enacted for the good stewardship of payroll tax dollars and proper enforcement of the programs they fund. 

Ultimately, in the partnership between federal and state governments in implementing unemployment insurance, states need more autonomy, authority, and encouragement to find ways to target fraud. Then in these laboratories of democracy, when systems prove to be effective, other states can learn and adopt what works for their citizens.