Pa. cracks down on unemployment cheats

Cheating on unemployment claims in Pennsylvania? Better watch your income tax returns.

The state partnered with the U.S. Department of the Treasury in the fall, and together they’ve already recouped $6.5 million in fraudulent unemployment payments by intercepting offenders’ tax returns.

 

“One of the largest areas where someone will lie is — they’ve actually gotten a job — they’ve gone back to work, but they’ve continued to report to us that they’re out of work, that they’re unemployed,” said Julia Hearthway, secretary of the state Department of Labor and Industry. “And they end up collecting both the unemployment benefit and their new paycheck.”

Labor and Industry ends up catching these culprits when their employers report new hires. Those that lie about the date they were hired, or being hired at all, are easily caught. Then, when they file their 2011 taxes, the state is watching. If the tax cheat is scheduled to receive a return, the state siphons it right off the top.

Part of the motivation for the crackdown is a by-product of the recession. With spiking unemployment rates, the state has had to borrow funds from the federal government in order to cover unemployment payments. Now the state owes the U.S. about $3 billion.

What about employer fraud?

Alice Ballard, a job-rights lawyer in Philadelphia, agrees that the debt should be paid down, but questions the state’s true intentions.

“All politicians love to get credit for going after fraud, and we all know that when they’re talking about fraud, they’re almost always talking about the little guy — they’re talking about the voter, they’re talking about the welfare recipient, they’re talking about the unemployment comp claimant,” said Ballard. “But if we’re trying to ensure the solvency of the trust fund, why aren’t we going after employer fraud just as aggressively as we are going after claimant fraud?”

Ballard said employers often defraud the unemployment fund by improperly labeling employees as “independent contractors.” In so doing, the businesses save a lot of tax dollars (including what would be paid into the unemployment fund), while the “independent contractors” basically work for a company, under a boss, without benefits or job security.

Speaking generally about the reason for the massive state unemployment fund debt, Ballard pointed to the fact that the taxable wage base for unemployment benefits hasn’t been raised since 1984. Basically, while inflation has risen over 30 years (causing the state’s payments to the unemployed to rise), employers only pay unemployment tax on the first $8,000 earned by their employees. That was true in 1984, and it’s true now.

This, she said, has practically built insolvency into the system.

Moving forward

The state maintains that the crackdown on individuals is a necessary function of the recovering economy, and that its work ensures that benefits are available to those who truly deserve them.

“This fund is for those individuals who need it — who lose their job due to no fault of their own and are on hard times — not for individuals trying to scam the system,” said Hearthway. “We’re being very aggressive to those individuals who are trying to cheat the system.”

Pennsylvania hopes to recover another $44 million this tax season from 7,000 unemployment cheats.

Those in that number probably should not count on April windfalls.