Over 100,000 Mass. residents could see thousands taken out of their tax refunds

Updated April 27 at 4:11 p.m.

For 112,000 residents who were overpaid unemployment benefits in the past few years, the state is coming to collect.

Overpayments are not unusual for unemployment. About 2% of all unemployment payments, or roughly $30 million, were overpayments in Massachusetts in 2019, per the state’s Department of Unemployment Assistance. But chaos in the early days of the pandemic and short-term federal programs — rapidly built, executed and shuttered — made the money owed now at a magnitude that’s anything but normal.

Administrative errors, fraud and confusion about who qualified for new, short-term federal programs led to billions being overpaid. After years of forgiveness efforts slowly whittled down that sum, the department is now trying to get $719 million back from taxpayers on this year’s tax refunds. The 112,000 claimants owe, on average, $6,400 to the federal and state government. Any tax refunds that would be given to a claimant will instead be put toward paying down their debt to the unemployment overpayments.

“There has been tremendous outreach that has been done to date, especially through a campaign last year, to reach as many claimants as possible,” Lauren Jones, Massachusetts’ secretary of labor, told GBH News.

But it still won’t put an end to the multiyear problem. There are tens of thousands more people whose money isn’t being taken out of their tax refunds this year — but the state still plans to recoup their money, so their time will eventually come.

The conditions in 2020 created a “powder keg,” as Rory MacAneney, an employment attorney at Community Legal Aid, explained it.

Overnight shutdowns at the start of the COVID-19 pandemic created a sudden need that the state’s Department of Unemployment Assistance tried to fill, with help from new federal programs. The amount of money distributed in 2020 — a total of $21 billion — was 15 times more than what it gave out in 2019. More than two-thirds of the overpayments were tied to federal pandemic programs.

“You’ve got the combination of: state workforce agencies aren’t able to work in person, they don’t have all their usual facilities, they are trying to learn how to do things remotely,” MacAneney said. “They’re facing a huge increase in the number of people who are applying for regular unemployment. And on top of that now, they’re also getting people who are applying for these pandemic programs, and each of the federal pandemic programs had its own sort of guidance.”

Governments often take back unemployment overpayments through tax intercepts. But after a multiyear pause on such intercepts during the pandemic and a huge increase in the number of people filing for unemployment benefits, many are experiencing this for the first time.

“I’ve had people who had no idea that there was an overpayment on their account,” MacEnaney said. “It’s from, like, 2015 ... and they’re just finding out now.”

The 112,000 claimants whose tax refunds will be intercepted this year, if they’re not in the process of applying for a waiver, are the group that’s been extensively narrowed down and been contacted several times by the department, Jones said.

“They never qualified for that one-click waiver program, nor did they take any action from all the previous attempts that we’ve tried through the additional relief programs that the Department of Unemployment Assistance has provided,” she said.

Jones isn’t sure how much the state will get back with the refunds.

“Every case is really going to be looked at on a case-by-case basis. And we also don’t know how much of a refund people would be eligible to receive,” she said.

Another 59,000 people who collectively owe roughly $370 million are still on the hook with the state and federal governments. What sets them apart from those whose refunds may be intercepted is that they qualified for a “one-click waiver” last year. But they didn’t click before it closed in October.

They won’t have it taken out of their tax refunds as the state conducts more outreach to figure out repayment plans.

Jones said that her department cannot reopen the waiver under state and federal law.

Employment lawyers suggest that anyone facing a debt to the state applies for what’s commonly called a “hardship waiver,” which could wipe the balance they owe if their expenses are more than they’re earning — or if they meet other criteria outlined on the state’s website.

Some still hope that the state will opt to forgive more of the money that’s owed.

Lydia Edwards, a state senator representing parts of Boston, Winthrop and Revere, sees payments from the early days of the pandemic as a crucial tool that helped workers and businesses stay stable during a tumultuous time.

She proposed a bill that would give the Department of Unemployment Assistance the power to waive any overpayments for “non-fault” cases: in other words, where the applicant was not at fault.

“What I find abhorrent is that when there were true mistakes made — the person didn’t do this, didn’t try to defraud the government — they’re now being stuck with some bills I’ve heard as high as $50,000 to pay back the unemployment,” she said, saying such forgiveness would be similar to the government forgiving PPP loans.

Jones did not take a stance on the bill.

“We’d have to see how that plays out in the legislative process,” she said.

Clarification: This story was updated to clarify that intercepts due to overpayments could have occurred after multiple years prior to the pandemic, as well.