Unemployment Insurance Fraud

The unemployment insurance program, commonly referred to as UI, is designed to provide individuals with an income when they are unable to find work, have been laid off, or are out of work due to factors beyond their control. Each state has its own unemployment insurance program that runs in conjunction with the federal government.

State laws determine who is eligible for unemployment payments and the penalties for people who misuse or abuse the program. In certain situations where individuals or employers misuse unemployment programs, criminal charges for unemployment insurance fraud may be possible.

What Is Unemployment Insurance (UI) Fraud?

Most unemployment insurance (UI) fraud cases occur when someone intentionally and knowingly makes false statements or misrepresentations in order to obtain unemployment insurance payments (benefits). Here are several ways people commonly commit this crime.

Failure to Report Employment

Some people who apply for unemployment benefits later go on to find a job. When this happens, people receiving unemployment payments have a duty to report their employment and how much they make to the state unemployment office. Failing to do so, and continuing to receive payments (or non-adjusted payments) while being employed, is unemployment insurance fraud.

False Information, Identification, or Identity Theft

Some workers try to obtain unemployment benefits by submitting applications that contain false or misleading information. For example, an applicant who uses a false name, or who uses the personal identifying information of someone else to obtain unemployment benefits, commits unemployment insurance fraud. Similarly, submitting false information about employment status, income, and other related issues can also result in fraud charges.

Misrepresenting Employment Efforts

A person must actively look for employment to receive unemployment insurance payments (unless some exception applies). Someone who fails to actively seek employment but reports doing so to the state unemployment office also commits unemployment insurance fraud.

Employer Fraud

In addition to workers, employers can also commit unemployment insurance fraud. There are several ways employers can do this, such as misclassifying workers as independent contractors, failing to report paid wages or paying workers under the table, or providing false information about workers who would otherwise be eligible to receive unemployment payments.

What Are the Penalties for Unemployment Insurance Fraud?

People who commit unemployment insurance fraud to obtain benefits can face both administrative and criminal penalties.

Administrative penalties can involve repayment of benefits, stiff monetary penalties and interest, and disqualification from future benefits. For instance, in Minnesota, the fraudulent overpayment penalty includes a 40% fee, interest, court costs, and a possible two-year disqualification for future unemployment benefits. (Minn. Stat. §§ 268.18, 268.183 (2025).)

Criminal penalties can include fines, incarceration, probation, and other penalties. Individual state laws determine what penalties apply in unemployment fraud cases and differ significantly from state to state. More on this below.

Can You Go to Jail or Prison for Unemployment Benefits Fraud?

It’s possible to spend time behind bars for unemployment insurance fraud, especially if you face felony charges or have a record of prior convictions. Many states penalize UI fraud based on the amount the defendant obtained, similar to theft penalties. So the more money that's involved, the stiffer the penalties will be. A defendant who commits fraud but doesn't obtain the benefits can also be prosecuted.

Misdemeanor and Felony Penalties for UI Benefits Fraud

Unemployment insurance fraud can be a misdemeanor or felony offense, depending on state law and the circumstances. State penalties vary, but many impose misdemeanor penalties when the amount involved is less than $1,000 to $2,000. A person can face felony charges for higher amounts. Misdemeanor penalties generally carry a maximum jail sentence of one year, plus fines. Felony charges can result in a greater range of penalties, with maximum prison sentencing ranging from 5 to 20 years or more.

First-time offenders might receive probation if facing misdemeanor charges or low-level felony charges. Offenders with lengthy rap sheets or who face serious felony charges are more likely to end up in prison. Judges will typically order all offenders to pay restitution (repayment of any funds received).

State-Specific Examples of Criminal Penalties for UI Benefits Fraud

Unemployment insurance fraud penalties vary significantly by state. The severity of charges typically depends on the dollar amount fraudulently obtained. Here are examples from three states to illustrate how these laws work in practice.

Colorado prosecutes UI fraud as theft of public benefits when someone intentionally misrepresents or withholds material facts to obtain unemployment payments. Offense classification depends on the amount involved. It's a misdemeanor when the fraud involves less than $2,000. Any amount over this threshold constitutes felony theft, with penalties ranging from one to 24 years of prison time. (Colo. Rev. Stat. § 18-4-104 (2025).)

Nevada also links UI benefits fraud directly to its theft penalties. Amounts of $1,200 or more trigger felony prosecution, with sentencing that escalates based on the total obtained. A convicted defendant can face maximum sentences ranging from 4 to 20 years in state prison for a category B, C, or D felony. (Nev. Rev. Stat. §§ 205.0835, 612.445 (2025).)

Utah's UI fraud statute classifies offenses based on the value of any benefits obtained or attempted to be obtained. Misdemeanor charges apply when the amount involved is less than $1,500. Second- and third-degree felony charges are possible for higher amounts. A conviction can result in a maximum sentence of 5 or 15 years of prison time. (Utah Code § 76-8-1303 (2025).)

Can I Avoid Criminal Charges and Penalties by Paying Back the Money?

Not if you committed fraud to obtain those benefits. The crime isn't just in getting benefits. Intentionally submitting false or misleading statements, using another's identity, or not reporting information constitutes fraud.

How Do the Authorities Discover UI Fraud?

State labor departments regularly conduct audits to reduce fraud and detect overpayments. The department reviews employer records, payroll records, individual claims, and payments. They can also check state and national employment databases to ensure recently hired individuals don’t keep collecting unemployment.

Unemployment insurance fraud increased dramatically during the pandemic, so many states created investigation units or increased fraud investigations. Most departments also have online reporting systems for suspected fraud, where anyone can report suspicious activity.

What Are Possible Legal Defenses to UI Fraud?

In any criminal case, including unemployment fraud cases, the type of legal defenses available to someone charged with a crime will differ depending on the circumstances. However, many unemployment insurance fraud cases involve one or more of the following defenses.

Lack of Criminal Intent

You cannot accidentally commit unemployment insurance fraud. To be convicted of this crime, a person has to intentionally make misrepresentations, lie, conceal, or do something else to fraudulently receive payments. If, for example, you mistakenly underreport your prior income when you apply for unemployment, this isn't enough to commit fraud.

Lack of Evidence

In any criminal proceeding, the state has the responsibility to present evidence to show beyond a reasonable doubt that the accused has committed a crime. In some unemployment insurance fraud cases, this evidence is simply not there. If the state cannot prove its case, you cannot be found guilty of a crime.

Identity Theft

If someone tries to apply for benefits using your identity, you should present this information to your state’s department of labor and the police. If it's clear you're a victim of identity theft, the prosecutor should drop the charges. (It’s also important to place a freeze or fraud alert with the three major credit reporting agencies and take other precautions if you're a victim of identity theft.)

Talk to a Lawyer

Even though unemployment insurance fraud might not seem like a significant crime, you always need to speak to an experienced criminal defense lawyer if you are facing charges or an investigation. A conviction for unemployment insurance fraud can lead to serious penalties. Even if you are not convicted, being investigated for a crime and being subject to the criminal justice process is not something you want to do without the aid and advice of a criminal defense attorney from your area.