Help me stay out of jail!

December 10, 2011 10:58 AM

I've unintentionally committed unemployment fraud. Now what?

I was laid off from my job in June. I started collecting unemployment benefits in July. (This is in New York State in the US.) Since then, I've started a small retail business online. According to the Claimant Handbook available on the unemployment insurance website (which I didn't notice/find until a few weeks ago -- my bad, MeFi) this means I have committed unemployment fraud -- even though I have yet to earn a penny from my new business.
(http://www.labor.ny.gov/formsdocs/ui/TC318.3e.pdf)

"If you are involved in free-lance work, self-employment, starting a business or doing “favors” for another business, you should call the Telephone Claims Center and give all details BEFORE claiming benefits"
AND
"In all cases of fraud, we can impose civil penalties or fines. If you are convicted of a misdemeanor, the penalties are a fine up to $500 or up to a year in jail or both. The felony
conviction carries an even longer jail sentence."

I am freaked out of my mind. I've tried to contact the Telephone Claims Center but there's literally no way to speak to a human via that number. So, my areas of concern, in order of importance to me, are:
1. Who do I need to speak to about this?
2. Should I just stop claiming unemployment immediately? I have no other source of income, no savings at all, and my field is incredibly difficult to find work in, much less *immediate* work. Unemployment is currently my only source of income.
3. I've spent a substantial sum of money on expenses related to my new business expecting that I would be able to write it off on my 2011 taxes. If I do claim these expenses, I expect my chances of being audited will skyrocket. Is that true? What should I do?

Thank you, MeFi. I know you are not employment lawyers or tax accountants but I am grateful for your advice.

posted by anonymous to Work & Money (28 answers total)

Cancel your claim immediately and hope they dont notice. If they do, get a lawyer.
posted by twblalock at 11:05 AM on December 10, 2011 [1 favorite]

First of all, don't freak out. It does not seem clear that you have actually committed fraud. (p. 8 of the PDF you linked states: "Unless you are enrolled in the Self Employment Assistance Program (SEAP), these activities may result in the loss of unemployment insurance benefits." (Emphasis added.) Moreover, (and TINLA), a criminal fraud charge might require a showing of intent on your part. Get some answers. Don't forgo unemployment benefits that you may actually be entitled to.

This does not seem like a terribly complicated legal question and I imagine there are lawyers who will answer your questions for free. Try calling these guys on Monday: Unemployment Action Center. This is not exactly what they do (they represent claimants at administrative benefits hearings) but they may still have the answers you are looking for, or be able to direct you to a legal services organization that does.
posted by dixiecupdrinking at 11:17 AM on December 10, 2011 [7 favorites]

1. Lawyer first, because you need to know how to proceed in a way that does not a) get you in trouble b) tangle you in red tape while everything is sorted out. They should have contacts for you.
2. Lawyer.
3. Claim your expenses. Totally unrelated question. It's a legitimate business whether or not it impedes your ability to collect UI.
posted by michaelh at 11:18 AM on December 10, 2011

if you're that worried about it, why you sign up for Pre-Paid Legal (as little $17 a month), and call the helpline in your state and ask them? Full disclosure, I'm a Pre-Paid Legal (PPL) rep, but I'm not trying to get you to sign up under me. The PPL is monthly, so you can quit at anytime. I've been a member since 2005. Questions like these come up all the time, and it's great to speak to a lawyer who specializes within that area of the law within 8 business hours.
posted by SocialPsiTina at 11:20 AM on December 10, 2011 [1 favorite]

IANAL and I don't live in New York....here in Michigan, though, all my experiences with collecting unemployment have been that the state is more concerned with are you actually earning money from some other endeavor, not have you started a business thus far in name/incorporation only. So take a deep breath and relax for a second. Call the appropriate people and explain your situation. If you haven't earned any money from your online business thus far, and you explain that this was an honest mistake, you just now read all the fine print, etc, and you want to be completely honest with them, etc etc, chances are they won't start any legal proceedings vis a vis Unemployment Fraud.

Personal anecdote: Some time ago I was collecting unemployment in Michigan, and then I got a new job. Unfortunately, my car (which I needed to get to work) completely broke down on the freeway just a few days after I started the new job and needed expensive repairs plus towing. My first paycheck wouldn't be forthcoming for two weeks so I made one last weekly claim to Unemployment. It was wrong, I deliberately deceived them, and many months later they caught up with me. I had to attend a hearing with an official (I forget his title) and I was scared to death....the mailed notice of hearing had detailed all the very dire possible outcomes of the situation (huge fines, penalties, interest, possible prison time....). But when we sat down and talked he was actually very human and understanding. He listened to my story, asked me some questions and then ultimately said "I believe that you were desperate and wouldn't normally defraud the State." My only penalty was to repay the amount of that final Unemployment check I'd received.

I'm thinking that you should start out by just talking to someone at Unemployment before you go to the expense of hiring a lawyer or anything. This was an honest mistake, not a deliberate attempt at fraud. You haven't collected any unreported income, so there really isn't evidence that you were deliberately trying to collect money you weren't entitled to.
posted by Oriole Adams at 11:29 AM on December 10, 2011 [1 favorite]

You're probably fine, you could probably even make some money with your side business and still be fine.

I, personally, would continue to collect unemployment and continue to search for a new "real" job and continue to run the side business. If all of a sudden the side business makes you more than minimum wage, stop collecting unemployment.

I'll admit that this is bad advice, but I think it is also reasonably realistic. YRMV.
posted by richrad at 11:30 AM on December 10, 2011 [3 favorites]

I am freaked out of my mind.

Way, way overreacting here. You've yet to earn a penny? I would think your activities, then, are on par with "looking for work" rather than working.

The authorities are not interested in going after someone for "fraud" who has not earned a dime from the supposed starting of a business.

You're freaking out for nothing.
posted by jayder at 11:33 AM on December 10, 2011 [16 favorites]

I second the advice to find some legal representation to explore your rights and responsibilities here, but also agree that you will likely found you have not done anything illegal and that you are entitled to all the benefits you receive. I was on New York state unemployment in 2010; I was able to work at part-time, temporary jobs while looking for permanent employment without losing my right to collect unemployment.I got reduced benefits for the weeks I earned other income, and it was my responsibility to report the work I had done, but the work did not mean I was completely ineligible for unemployment. And most of the work I had during the time I was on unemployment was self-employment. So if I could make money from my own business and still be eligible for unemployment, I'm doubtful that you would be uneligible because of a business that DIDN'T make any money.
posted by layceepee at 11:36 AM on December 10, 2011 [2 favorites]

You can call for a meeting or trial( don't think TRIAL) where basically meet with a case manager and go over your expenses. Once they see you're tapped they will, most likely, set up payment or waive it till a later date.
posted by femmme at 11:40 AM on December 10, 2011

I'm also NAL, but I would think that their two concerns are:

1. Are you earning any money? No, you are not.

2. And are you still looking for regular work? If you aren't actively job hunting, you're not entitled to unemployment benefits, so the thinking is probably that if you're starting up your own business, then you're not hunting for a job somewhere else. So make sure you're still doing your required job hunting activities, no matter what.

And good luck to you. It sucks out there right now, and you are far from the only person who's trying to start their own business.
posted by MexicanYenta at 11:43 AM on December 10, 2011

I just don't think there is anything to freak out about WHATSOEVER. I don't think there's any need for an unemployed person who obviously has to worry about income to run out and spend money on a lawyer, for goodness' sake.

These days, so many people do stuff like freelance work, selling online on sites like Etsy, odd jobs off Craigslist etc. as a way to make money on the side. And you have not even made any money from your business!

If you do make money from your business it is probably required to state how much with your weekly filing and your unemployment check would be reduced by that much money. If you haven't made money yet, my guess is that the requirement for your weekly filing is exactly the same and you have done absolutely nothing wrong. Just go read the rules when you do your filing, carefully, and follow them.

I was unemployed and got a part time seasonal retail job to try and get out of the house instead of sitting at home, demoralized. So I stated as required on my weekly filing that I made X amount of income, and my check was less. That was all.

Calm down, no one is going to come after you or fine you.
posted by citron at 12:10 PM on December 10, 2011

You are freaking out needlessly and overreacting and you probably don't need a lawyer either. You've made no money. Unemployment provides a source of income while you're looking for work. Your only risk here is if you've stopped looking for work, which you shouldn't really admit to even if you have.

Contact the claims number again and listen carefully to all the options. I had a devil of a time contacting a person when I called my office but I did eventually figure out which path would get me a human. If all else fails, go to the unemployment office and talk to someone in person. Tell them you're trying to start a business and ask how that will impact your benefits and that to date you've earned no money. Mention that work in your field is very hard to find.

Don't be hysterical and use common sense. Reread the brochure and all other relevant documents from beginning to end so that you really understand the rules and make note of what is not clear so you can say, "on page 14 of publication xyz it says this but page 7 of publication abc says this."
posted by shoesietart at 12:14 PM on December 10, 2011

IANAL. I agree that this is probably not a difficult or costly matter to resolve with regard to your unemployment benefits. Don't just cancel them in fear, you're likely still entitled to all of them.

However, I think it would be best for you to get some tax advice before you claim those business expenses on your 2011 taxes.
posted by desuetude at 12:16 PM on December 10, 2011

People are being a bit dismissive of OP's concerns. The PDF linked in the OP states the following:

You are considered to be employed if you are engaged in operating or starting a business either by yourself, with a partner or in a corporate arrangement. Time spent during the day or evening or on weekends preparing to start or actually operating a business may be considered employment even though no sales are made nor any compensation received.

It is clearly not as simple as "you didn't make any money, so you can still claim unemployment." The language of the document suggests that starting a business may be enough to disqualify one from unemployment benefits, but that there are additional, unstated factors that go into the determination. This is why it is important to get an opinion from someone who knows how these things actually work.
posted by dixiecupdrinking at 12:21 PM on December 10, 2011

I just read through most of the PDF doc. I am not an expert of any kind, but based on what i read, you are considered employed if you are working on starting your own business:

What if I want to start my own business?

Notify the Telephone Claims Center before you take
any steps to start a business. Unless you are enrolled
in the Self Employment Assistance Program (SEAP),
these activities may result in the loss of unemployment
insurance benefits (see page 15 for additional
information regarding SEAP).

You are considered to be employed if you are engaged
in operating or starting a business either by yourself,
with a partner or in a corporate arrangement. Time
spent during the day or evening or on weekends
preparing to start or actually operating a business may
be considered employment even though no sales are
made nor any compensation received.

Being employed does affect your payments. However, I read the SEAP section and it sounds like all you need to do is stop working on your startup, register with the SEAP, and then you can *most* likely, do both and legally.

It is very important that you contact your local
One Stop Career Center before starting your own
business. You must comply with program requirements
and receive written acceptance into the SEAP program
before you can start or operate your own business
while collecting benefits.

Just go through the process so you're covered. I wouldn't worry about what's happened already.
posted by getmetoSF at 12:23 PM on December 10, 2011 [2 favorites]

(But, right, there is probably near-zero risk of a fraud prosecution here. I'm just saying, OP should get help straightening out whether OP is actually entitled to unemployment benefits.)
posted by dixiecupdrinking at 12:23 PM on December 10, 2011

OP is right that this is not considered acceptable while collecting UE. I went to a SEAP orientation workshop and they warned people that even specific market research could be considered 'business activity' without even taking action.

That said, they also said that they don't know how the government would track down such a thing, and usually when people get into trouble it's because the government is investigating something else and this comes up. The problem is that it can 'come up' years and years down the road and still get you into trouble. They told the people who had already started doing stuff to stop. I don't remember whether or not they told them to speak with UE about it though.
posted by Salamandrous at 12:25 PM on December 10, 2011

Your not earning any money? Sounds like a "hobby business." Which means you might not to be able to claim any deductions on your taxes either. As I understand it you have to make a profit to claim deductions (although you may be able to claim previous losses in future years.)

I am not a lawyer or tax accountant, but maybe look up the IRS rules on hobby businesses. I wouldn't think a hobby business would get in the way of unemployment benefits. Best of luck making a profit!
posted by bushmango at 12:47 PM on December 10, 2011

Eh, disregard my advice above. After reading the other comments one more time, and especially if your intent is to have this business make money, I'd recommend the straight and narrow approach.
posted by bushmango at 12:51 PM on December 10, 2011

Since no one has mentioned it yet I'm going to link to the 2009 story about the New York woman who lost her unemployment benefits due to receiving $1 a day in Google Adsense revenue on a hobby food blog.
posted by XMLicious at 12:57 PM on December 10, 2011

If all else fails, go to the unemployment office and talk to someone in person.

This. Go in person. And after you get an answer that seems to be correct, go back a few days later, or to another branch, and ask someone else. Take down names, cover your butt. Try to get a consensus. Because my experience has been that most of them only know how to do their own little niche job and don't really know much about the overall rules and regulations.* And you don't want to inadvertently screw yourself because you were given inaccurate information.

*I still have absolutely no freaking idea if my emergency unemployment benefits are going to end come Dec. 31 because Congress hasn't extended them, or not. The people in the unemployment office keep told me they won't stop, but I don't believe it for a minute. There are four different levels of unemployment in my state, and no one seems to understand what they are, exactly.
posted by MexicanYenta at 1:16 PM on December 10, 2011

Go in to the unemployment office in person. Continue to claim in the mean time. Try to spend as little money as possible in case you have to pay some back.
posted by empath at 2:57 PM on December 10, 2011

A large part of the issue with starting a business is that the state thinks the time you spend starting a business is better spent looking for a job and they don't want to pay people while they get their businesses up and running. But as was mentioned up thread, there isn't a good way in most circumstances for anyone to know how you've spent your day. Most unemployed people are doing what they can to get by and for a lot of them that means, collecting unemployment, looking for work and trying to get something started that might become a source of income. At this point, since you're already worried, don't admit to having taken any steps toward starting a business and ask what you need to do so that you can start the business while holding on to your benefits.
posted by shoesietart at 4:22 PM on December 10, 2011

Relax. How are they ever going to find out since you've not earned any money? Don't borrow trouble, don't call up and confess.
posted by Ideefixe at 4:40 PM on December 10, 2011

Do not admit anything to the state. If you can't sleep at night, talk to a lawyer. Talking to the state directly at this point will do you no good. At best you'll talk to an incompetent bureaucrat, at worst a malicious one.
posted by milarepa at 5:20 PM on December 10, 2011 [2 favorites]

I almost had all health care taken away in Ontario despite being 100% eligible because I said the wrong thing to the wrong nasty bureaucrat. Lawyer lawyer lawyer.
posted by Yowser at 9:10 PM on December 10, 2011

IANATaxLawyer, but I was unemployed in NY and did collect benefits while in the SEAP program for 9 months. Just see what you have to do to get into SEAP. I think the only way anyone would be tipped off is by those tax deductions you plan to claim -- so I would either get in the program ASAP or skip claiming those deductions.
posted by lgandme0717 at 7:06 AM on December 11, 2011

Look in the phonebook's community services section for the legal aid office nearest you. Talk to them.
posted by theora55 at 7:29 AM on December 11, 2011