S. 4016 — Stop Unemployment Fraud Act

This section establishes requirements under SSA §303 (42 U.S.C. 503) for state agencies administering unemployment compensation to certify procedures verifying claimant identity, including at least one valid federal or state government-issued identification document and one or more supporting documents (e.g., utility bills, lease agreements, voter registration cards, vehicle registration, or insurance documents) deemed sufficient by the state or approved by the Secretary of Labor. It directs the Secretary of Labor to promulgate regulations within 12 months of enactment governing such procedures, which must account for administrative costs, provide due process, ensure documentation accuracy without systematic mismatches or bias based on personal characteristics, minimize false positives/negatives, and comply with privacy, cybersecurity best practices, and civil rights laws. The requirements apply to initial unemployment compensation applications received by states on or after two years from enactment.

This section conditions a state's eligibility to implement exceptions (H) and (I) to the withdrawal standard under Section 3304(a)(4) of the Internal Revenue Code on the state certifying to the Secretary of Labor that it (1) uses the system designated by the Secretary (or another system at state discretion) known as the Integrity Data Hub for cross-matching unemployment compensation claimants to prevent and detect fraud and improper payments; and (2) has established procedures to (A) use the National Directory of New Hires to identify employed claimants, verify employment, deny or reduce payments, and recover overpayments; (B) use the State Information Data Exchange System (or another system) to facilitate employer responses to state workforce agency requests for information; (C) request information from the Commissioner of Social Security (or other sources) on incarcerated individuals to enforce ineligibility for unemployment compensation; and (D) compare claimant information against Social Security Administration records on deceased individuals. (As background, the withdrawal standard under Section 3304(a)(4) denies states full credit against the federal unemployment tax for employers unless state unemployment laws meet specified requirements; exceptions (H) and (I) allow limited deviations.)

This section revises state unemployment compensation (UC) law requirements under SSA §303(a)(1)—which conditions federal payment certifications on states ensuring full UC payment "when due"—by cross-referencing subsection (n) and adding subsection (o) to define payments as due only after an individual establishes eligibility for a benefit year or period, files a weekly claim, meets specified weekly eligibility requirements under subsection (a)(10) and (a)(12) and state law, and completes identity verification under subsection (n)(1). (Thus, states must fully verify eligibility prior to payment, ending the "pay and chase" model of issuing benefits upfront and pursuing overpayments later.) It further (1) directs the Secretary of Labor to promulgate regulations within 180 days of enactment establishing maximum time frames for UC payments after initial eligibility determinations, including during high-volume claim periods; and (2) adds subsection (p) prohibiting claimant self-attestation or self-certification alone as sufficient to establish weekly UC eligibility. The amendments apply to certifications for payments made after two years from enactment.

This section requires the Secretary of Labor to monitor each state's compliance with subsection (r) of section 303 of the Social Security Act (42 U.S.C. 503). It further authorizes the Secretary, after reasonable notice and hearing, to withhold 5% of funds appropriated under section 901(c)(1)(A) from any state not complying with subsections (n) or (o) and to implement a corrective action plan for the state.

This section amends SSA sec. 303(a)(12)—which requires state unemployment compensation (UC) laws to provide for UC payments only to individuals able to work, available for suitable work, and actively seeking work—by conditioning the active work search requirement on new standards in subsection (r). Subsection (r) provides that a UC claimant actively seeks work only if the individual (1) registers for employment services as prescribed by the state agency, (2) maintains a record of work search (including employers contacted, method of contact, and date contacted), and (3) provides the record to the state agency each week benefits are received; requires states to verify such records; and directs the Secretary of Labor to issue guidance on standards for registration and verification not later than six months after enactment. The amendments apply to weeks of regular UC beginning two years after enactment.

This section amends the Internal Revenue Code (IRC) and Social Security Act to authorize states to retain, upon meeting specified certifications, (1) up to 5% of recovered unemployment compensation overpayments (excluding those due to agency error) and (2) up to 5% of contributions or payments in lieu of contributions collected via state agency investigation and assessment—immediately depositing such amounts into a state fund rather than the Unemployment Trust Fund (UTF) for purposes including deterring improper payments; ensuring proper classification of employees, independent contractors, and employers; crediting the state's UTF account; modernizing unemployment insurance technology infrastructure; and improving timely administration of state unemployment compensation law. The section makes conforming changes to IRC §§3304(a)(3)-(4) and 3306(f) and SSA §§303(a)(4)-(5) (42 U.S.C. 503(a)(4)-(5)) to permit these exceptions to immediate UTF deposit requirements; requires states to apply the authority similarly to federal compensation programs; and applies to such recoveries and collections after the two-year period beginning on the date of enactment (with states permitted to amend laws earlier). (As background, the UTF centrally holds state unemployment funds invested in U.S. obligations; these changes enable states to reinvest recoveries in program integrity.)