States Overpaid Almost $13 Billion in Unemployment Benefits During First Year of Pandemic

A new report reveals just how much states overspent on jobless aid.

When the coronavirus pandemic first hit home, millions of jobs were shed within weeks. Thankfully, lawmakers stepped up and boosted unemployment benefits at the start of the pandemic to help jobless workers who may not have had savings to fall back on.

But a new report from the Government Accountability Office (GAO) reveals that state unemployment programs overpaid jobless benefits by a whopping $12.9 billion during the first year of the pandemic. And that's a lot of money to go to waste.

Fraud issues and more

When the pandemic-fueled economic crisis first erupted, state unemployment systems were inundated with jobless claims. And as states scrambled to get aid out to the people who needed it, certain details may have slipped through the cracks, resulting in a host of overpayments.

The GAO estimates that of the almost $13 billion in overpayments made by states, about $1.3 billion has already been documented as fraud. Meanwhile, a large share of that overpayment stemmed from the Pandemic Unemployment Assistance (PUA) program, which provided jobless benefits to self-employed and gig workers who normally wouldn't be entitled to any sort of unemployment compensation. It's estimated that $4.6 billion was overpaid in PUA benefits alone.

Of course, at first glance, $12.9 billion in overpayments sounds like a lot of money. But in the context of the roughly $700 billion that states have spent on unemployment benefits since the pandemic began, it's not such a drastic percentage.

Still, some states are now trying to claw back extra unemployment funds that went out to people who they believe were overpaid. To date, just $300 million of those funds have been recovered, and whether states are successful in recouping more of that money is yet to be determined.

In certain cases, jobless workers may have received overpayments without being aware of that fact, and at this point, that money may have already been spent. That means a lot of people may not even be in a position to repay their states for those mistakes.

Meanwhile, as states continue to investigate their overpayments, that $1.3 billion in fraudulent payments could climb. Similarly, that $12.9 billion figure could rise as states continue to do their digging.

For months, states were focused on addressing jobless claim backlogs in an effort to dish out aid to the people who really needed it. Now that many have made good headway in addressing those backlogs and jobless claim volume has dropped, states can refocus their efforts on investigating overpayments with the hopes of getting some of their money back.

Recouping those funds could put states in a better position to give out additional aid as the coronavirus crisis drags on. Some states, for example, are offering return-to-work bonuses in an effort to get more people back into the labor force. Getting their hands on extra funds that were overpaid could make it possible for more states to go a similar route and fuel their own individual economic recoveries.