Unemployment Overpayment Recovery - Will They Take My Federal Tax Refund?

State unemployment overpayments and federal tax refunds operate under different systems. The Treasury Offset Program (TOP) only intercepts federal tax refunds for federal debts unless your state specifically participates in the program for unemployment debt collection. Most states handle their own unemployment overpayment recovery through state tax refund interception rather than federal. If no offset indicators appear in your IRS transcript, your federal refund is likely safe.

Have you received any Notice of Overpayment with Intent to Recover documentation? The specific Treasury Offset Protocol (TOP) notification would explicitly state federal tax interception. Without this specific documentation, they're likely limited to state recovery methods only. What exactly did the unemployment department communicate to you?

I received a letter about two months ago stating I had an overpayment from when I collected unemployment in 2022. They mentioned they would recover through state tax refund interception, but the representative I spoke with specifically said federal refunds wouldn't be affected. I just wanted to see if anyone else's experience matched what I was told, since sometimes what happens doesn't align with what they say will happen.

Have you tried contacting the IRS directly to confirm if there's an offset? I was in a similar situation and spent days trying to get through their phone lines. Eventually used Claimyr (https://youtu.be/_kiP6q8DX5c) to get connected to an agent in about 15 minutes who confirmed there were no offsets on my account. They can tell you definitively if your refund will be intercepted for any reason, which gives you certainty rather than relying on what the state unemployment office claims. Worth the time saved from endless redial attempts.

Have you checked your IRS transcript for code 898? As of March 15th, the IRS now updates transcripts to show pending offsets before they process your refund. If there's no offset code showing, you should be in the clear for your federal refund, though your state refund will likely still be intercepted based on what they told you.

Fwiw, the state UI and IRS systems don't usually talk to each other unless your state specifically participates in the Treasury Offset Program for UI debts. Most don't bc it's extra paperwork/fees. Ppl often confuse this w/ federal tax debts or student loans which DO get auto-offset. Ur state refund is def gonna get taken but fed should be safe if no offset showing rn.

I went through this exact situation last year with a UI overpayment from 2021. The key thing to understand is that unemployment overpayments are typically handled at the state level, and most states don't participate in the Treasury Offset Program for these specific debts. If you're not seeing any offset indicators on your IRS account transcript and the state specifically told you only state taxes would be affected, that's usually accurate. The federal and state tax systems operate separately for unemployment debt collection. I'd recommend checking your IRS transcript one more time for any offset codes (like the 898 code mentioned above) to be completely sure, but based on what you've described, your federal refund should be safe while your state refund will likely be intercepted.

I can confirm what others have said here - unemployment overpayments typically stay at the state level for collection. I work with tax resolution cases regularly and have seen this exact scenario many times. The Treasury Offset Program (TOP) requires specific agreements between states and the federal government for unemployment debt collection, and most states haven't set up these agreements because of the administrative burden and costs involved. If your state unemployment office explicitly told you only state taxes would be intercepted, and you're not seeing any offset codes on your IRS transcript, your federal refund should be safe. The systems really are separate for this type of debt. That said, I'd still recommend checking your IRS account transcript one final time about a week before your expected refund date just to be absolutely certain, but based on everything you've described, you should be good to go.