Intercepting refunds of erroneous unemployment employer contributions

UIPL9-08acc.pdf (https://www.dol.gov/sites/dolgov/files/ETA/advisories/UIPL/2008/UIPL9-08acc.pdf)

                                                        CLASSIFICATION
     Employment and Training Administration             Immediate Deposit and Withdrawal Standards
                Advisory System                         CORRESPONDENCE SYMBOL
           U.S. Department of Labor                     OWS/DL
            Washington, D.C. 20210                      DATE
                                                        January 29, 2008

ADVISORY:               UNEMPLOYMENT INSURANCE PROGRAM LETTER NO. 9-08

TO:                     STATE WORKFORCE AGENCIES

FROM:                   DOUGLAS F. SMALL /s/
                        Deputy Assistant Secretary

SUBJECT:                Immediate Deposit and Withdrawal Standards – Intercept of Refunds of
                        Erroneous Employer Contributions


1.      Purpose. To provide guidance regarding the Department of Labor's (Department’s)
        interpretation of Federal law regarding the intercept of refunds of erroneous employer
        contributions to offset other employer liabilities to the state.

2.      References. Sections 3304(a)(4), and 3306(h) of the Federal Unemployment Tax Act
        (FUTA); Section 303(a)(5) of the Social Security Act (SSA); Unemployment Insurance
        Program Letter (UIPL) No. 45-89.

3.      Background. Section 3304(a)(4), FUTA, requires, as a condition of employers in a state
        receiving credit against the Federal unemployment tax, that:

              all money withdrawn from the unemployment fund of the State shall be used
              solely in the payment of unemployment compensation, exclusive of expenses
              of administration, and for refunds of sums erroneously paid into such fund . .
              . . [Emphasis added.]

        The same withdrawal standard is found in Section 303(a)(5), SSA, as a condition for a
        state to receive administrative grants.

        Recently, the question has arisen whether refunds of erroneously paid employer
        contributions may be intercepted to pay liabilities the employer owes the state rather than
        directly refunding the employer. Many state laws currently permit intercept of state
        income tax refunds or lottery winnings to pay other liabilities owed the state. This UIPL
        is issued to inform states of the Department's interpretation of Federal law requirements.


RESCISSIONS                                          EXPIRATION DATE
None                                                 Continuing

4.   Intercept of Refunds. Federal law authorizes the state unemployment compensation (UC)
     agency to “refund” the amounts erroneously paid by employers into the state
     unemployment fund. Federal law does not specify that the refund must be made directly
     to the employer. As a result, the state UC agency may intercept the refund and apply it to
     obligations the employer may owe the state.

     The Department notes that permitting the UC program to participate in state-wide
     intercept programs may enhance the UC fund if the funds intercepted by the state through
     other sources are permitted to be used to satisfy past due employer contributions to the
     unemployment fund.

     Unlike refunds of amounts erroneously paid by employers, Federal law requires the
     payment of compensation to the individual whose unemployment is being compensated.
     Section 3306(h), FUTA, defines compensation to mean “cash benefits payable to
     individuals with respect to their unemployment.” (Emphasis added.) As explained in
     UIPL 45-89, under the withdrawal standard:

            all unemployment compensation must be paid directly, as a matter of
            right, to the individual whose unemployment is being compensated, except
            for some narrowly limited statutory exceptions. … To deduct
            compensation to pay debts, or to otherwise provide for payment to
            someone other than the claimant personally, would defeat the intent and
            purpose of the program.

     Thus, Federal law requires a state to limit withdrawals from its unemployment fund for
     compensation paid directly to the individual. However, there are a number of statutory
     exceptions, including one permitting withdrawals to pay refunds of sums erroneously
     paid into the fund. This exception for refunds does not require direct payment.

5.   Action. State administrators should distribute this advisory to appropriate staff.

6.   Inquiries. Questions should be addressed to your Regional Office.