EDD's Collection of Overpayments

The California Employment Development Department (EDD) is responsible for paying out Unemployment Insurance (UI), Disability Insurance (DI) and Paid Family Leave (PFL) benefits. However, if the EDD has determined that you or a loved one has been paid benefits that you were not entitled to, the department has the legal right to collect overpayment funds. Today, we’ll be covering how overpayment works and what you legally need to know.

What Are Overpayments? 

A benefit overpayment is when the EDD determines that a claimant is not entitled to the benefits they have already received. Overpayment can occur for a variety of reasons, including that the department made an error while issuing the funds or the funds were fraudulently claimed. 

When overpayments are discovered, the EDD will first issue a notice of overpayment demanding you repay the funds. If you do not work out a repayment plan or prove nothing is owed to the EDD, the department can aggressively move forward to collect the debt through a variety of means.

Methods of Collection for Overpayments

After a notice of overpayment is issued, you should immediately contact the EDD to discuss repayment options or provide legal proof that nothing is owed. If no effort is made to settle your debt, the EDD will take legal action and can collect the funds through a surprising number of means. 

The multiple methods the EDD can utilize to collect overpayments include:

  • Wage Garnishment — An order is sent to your employer to withhold a portion of your paycheck for repayment. 
  • Interception of Tax Returns — The Franchise Tax Board and IRS can withhold a portion or the entirety of your California state and federal income tax return. 
  • Levy on Bank Accounts —  A court-ordered levy is placed on personal bank accounts instructing the bank to remit funds for repayment. 
  • Lien on Personal/Real Property— Personal and/or real property, such as your automobile or home, can be legally claimed until the overpayment amount is paid in full.
  • Unemployment/Disability— Weekly monetary deductions from unemployment or disability benefits can be issued by the EDD.
  • Lottery Winnings — The State Lottery is contacted and instructed to withhold all or a portion of any lottery winnings. 

How the EDD moves forward to collect your overpayment will depend on the total amount owned and your current assets.

Are There Limits on Collection?

While the extensive amount of methods the EDD can take to collect overpayments may be intimidating, there are limits to the amount of collection they can demand. Essentially, the Employment Development Department cannot reduce your income beyond your current living expenses. Though, a variety of factors can limit what the EDD may collect. 

Fraud vs. Non-Fraud Debts

The EDD labels overpayments into two forms: fraud and non-fraud. An overpayment is considered fraud if the department discovers that you intentionally provided false information or withheld information when filing for benefits. Because this is a serious offense, criminal prosecution, a penalty of 30% of the total overpayment amount, and disqualification of benefits of up to 23 weeks can be issued.

An overpayment is labeled non-fraud if the EDD determines you were not eligible for the benefits you received, but no illegal activity was taken on your part. For instance, a non-fraud case could occur if you receive more than your allotted benefit amount due to an agency or employer error. If you were not responsible for the overpayment, you will receive a notice determining whether or not you must pay back the funds. If so, you must begin the repayment process as soon as possible.

25% Rule

Federal law limits how much of your paycheck can be withheld for overpayment. Because you are expected to be left with enough to satisfy your individual living expenses, the EDD may only garnish a maximum of 25% percent of your disposable earnings. If your wages have already been garnished due to defaulted child support payments, student loans, or unpaid taxes, the total wage garnishment of all debt cannot exceed 25%.

Statute of Limitations

While there is a strict statute of limitations for personal injury or criminal law, the limitations surrounding overpayment collection are much less harsh. According to the California State Constitution, debts owed to the State of California, such as unemployment benefits or disability benefits, become unenforceable after 30 years. In other words, the Employment Development Department has roughly 30 years from the time the benefits were paid to seek collection.

Final Thoughts on Overpayment Collection

If you or someone you love is receiving benefits they’re no longer eligible for, it’s imperative for you to take steps to prevent a future issue of overpayment. 

You will need to contact the EDD if:

  • You received payment from your employer.
  • You returned to work either part-time or full time.
  • You have recovered from disability.
  • The claimant is now deceased and you need to report the date of death.