SECTION 1. SHORT TITLE. 
This Act may be cited as the ‘‘Protecting Taxpayers 
and Victims of Unemployment Fraud Act’’. 
SEC. 2. RECOVERING FEDERAL FRAUDULENT COVID UNEM-
PLOYMENT COMPENSATION PAYMENTS. 
(a) ALLOWING STATES TO RETAIN PERCENTAGE OF 
OVERPAYMENTS FOR PROGRAM INTEGRITY.— 
(1) PANDEMIC UNEMPLOYMENT ASSISTANCE.— 
Section 2102(d) of the CARES Act (15 U.S.C. 
9021(d)) is amended by amending paragraph (4) to 
read as follows: 
‘‘(4) FRAUD
AND
OVERPAYMENTS.—Section 
2107(e) shall apply with respect to pandemic unem-
ployment assistance under this section by sub-
stituting ‘pandemic unemployment assistance’ for 
‘pandemic emergency unemployment compensation’ 
each place it appears in such section 2107(e).’’. 
(2) FEDERAL PANDEMIC UNEMPLOYMENT COM-
PENSATION.—Section 2104(f)(3) of such Act (15 
U.S.C. 9023(f)(3)) is amended— 
(A) in subparagraph (A)— 
(i) by striking ‘‘3-year’’ and inserting 
‘‘10-year’’; and 
(ii) by inserting ‘‘, except that a State 
may retain a percentage of any amounts
recovered as described in subparagraph 
(C)’’ before the period at the end; and 
(B) by adding at the end the following: 
‘‘(C) RETENTION OF PERCENTAGE OF RE-
COVERED FUNDS.—The State agency may re-
tain 25 percent of any amount recovered from 
overpayments of Federal Pandemic Unemploy-
ment Compensation or Mixed Earner Unem-
ployment Compensation that were determined 
to be made due to fraud. Amounts so retained 
by the State agency shall be used for any of fol-
lowing: 
‘‘(i) Modernizing unemployment com-
pensation systems and information tech-
nology to improve identity verification and 
validation of applicants. 
‘‘(ii) Reimbursement of administrative 
costs incurred by the State to identify and 
pursue recovery of fraudulent overpay-
ments. 
‘‘(iii) Hiring fraud investigators and 
prosecutors. 
‘‘(iv) Other program integrity activi-
ties as determined by the State.’’;
(3) PANDEMIC
EMERGENCY
UNEMPLOYMENT 
COMPENSATION.—Section 2107(e)(3) of such Act 
(15 U.S.C. 9025(e)(3)) is amended— 
(A) in subparagraph (A)— 
(i) by striking ‘‘3-year’’ and inserting 
‘‘10-year’’; and 
(ii) by inserting ‘‘, except that a State 
may retain a percentage of any amounts 
recovered as described in subparagraph 
(C)’’ before the period at the end; and 
(B) by adding at the end the following: 
‘‘(C) RETENTION OF PERCENTAGE OF RE-
COVERED FUNDS.—The State agency may re-
tain 25 percent of any amount recovered from 
overpayments of pandemic emergency unem-
ployment compensation that were determined to 
be made due to fraud. Amounts so retained by 
the State agency shall be used for any of fol-
lowing: 
‘‘(i) Modernizing unemployment com-
pensation systems and information tech-
nology to improve identity verification and 
validation of applicants. 
‘‘(ii) Reimbursement of administrative 
costs incurred by the State to identify and
pursue recovery of fraudulent overpay-
ments. 
‘‘(iii) Hiring fraud investigators and 
prosecutors. 
‘‘(iv) Other program integrity activi-
ties as determined by the State.’’. 
(4) EXTENDED
UNEMPLOYMENT
COMPENSA-
TION.—A State to which section 4105 of the Fami-
lies First Coronavirus Response Act (26 U.S.C. 
3304 note) applied may retain 25 percent of any 
amount recovered from overpayments of sharable ex-
tended compensation and sharable regular com-
pensation (as such terms are defined in section 204 
of the Federal-State Extended Unemployment Com-
pensation Act of 1970) paid for weeks of unemploy-
ment described in such section 4105 that were deter-
mined to be made due to fraud. Amounts so retained 
by the State agency shall be used for any of the pur-
poses described in section 2107(e)(3)(C) of the 
CARES Act (15 U.S.C. 9025(e)(3)(C)). 
(5) FIRST
WEEK
OF
REGULAR
COMPENSA-
TION.—A State that was a party to an agreement 
under section 4105 of the CARES Act (15 U.S.C. 
9024) may retain 25 percent of any amount recov-
ered from overpayments of regular compensation
paid to individuals by the State for their first week 
of regular unemployment for which the State re-
ceived full Federal funding under such agreement in 
any case in which such overpayments were deter-
mined to be made due to fraud. Amounts so retained 
by the State agency shall be used for any of the pur-
poses described in section 2107(e)(3)(C) of the 
CARES Act (15 U.S.C. 9025(e)(3)(C)). 
(b) TREATMENT UNDER WITHDRAWAL STANDARD 
AND IMMEDIATE DEPOSIT REQUIREMENTS.—Any amount 
retained by a State pursuant to paragraph (4) or (5) of 
subsection (a) or under section 2102(d)(4), section 
2104(f)(3)(C), or 2107(e)(3)(C) of the CARES Act, and 
used for the purposes described therein, shall not be con-
sidered to violate the withdrawal standard and immediate 
deposit requirements of paragraph (4) or (5) of section 
303(a) of the Social Security Act (42 U.S.C. 503(a)) or 
paragraph (3) or (4) of section 3304(a) of the Internal 
Revenue Code of 1986. 
(c) LIMITATION ON RETENTION AUTHORITY.—The 
authority of a State to retain any amount pursuant to 
paragraph (4) or (5) of subsection (a) and under section 
2102(d)(4), section 2104(f)(3)(C), and 2107(e)(3)(C) of 
the CARES Act shall apply only—
(1) with respect to an amount recovered on or 
after the date of enactment of this Act; and 
(2) during the 10-year period beginning on the 
date on which such amount was received by an indi-
vidual not entitled to such amount. 
SEC. 3. PERMISSIBLE USES OF UNEMPLOYMENT FUND FOR 
PROGRAM ADMINISTRATION. 
(a) WITHDRAWAL STANDARD
IN
THE INTERNAL 
REVENUE CODE.—Section 3304(a)(4) of the Internal 
Revenue Code of 1986 is amended— 
(1) in subparagraph (F), by striking ‘‘and’’ 
after the semicolon; and 
(2) by inserting after subparagraph (G) the fol-
lowing new subparagraphs: 
‘‘(H) provided the certifications made by 
the State as described in section 4 of the Pro-
tecting Taxpayers and Victims of Unemploy-
ment Fraud Act are in effect at the time of ap-
proval of the State law under this subsection, 
an amount, not to exceed 5 percent, of any 
overpayment of compensation recovered by the 
State (other than an overpayment made as the 
result of agency error) may, immediately fol-
lowing the State’s receipt of such recovered
amount, be deposited in a State fund from 
which money may be withdrawn for— 
‘‘(i) the payment of costs of deterring, 
detecting, and preventing improper pay-
ments; 
‘‘(ii) purposes relating to the proper 
classification of employees and the provi-
sions of State law implementing section 
303(k) of the Social Security Act; 
‘‘(iii) the payment to the Secretary of 
the Treasury to the credit of the account 
of the State in the Unemployment Trust 
Fund; 
‘‘(iv) modernizing the State’s unem-
ployment insurance technology infrastruc-
ture; or 
‘‘(v) otherwise assisting the State in 
improving the timely and accurate admin-
istration of the State’s unemployment com-
pensation law; and 
‘‘(I) provided the certifications made by 
the State as described in section 4 of the Pro-
tecting Taxpayers and Victims of Unemploy-
ment Fraud Act are in effect at the time of ap-
proval of the State law under this subsection,
an amount, not to exceed 5 percent, of any pay-
ments of contributions, or payments in lieu of 
contributions, that are collected as a result of 
an investigation and assessment by the State 
agency may, immediately following receipt of 
such payments, be deposited in a State fund 
from which moneys may be withdrawn for the 
purposes specified in subparagraph (H);’’. 
(b) DEFINITION OF UNEMPLOYMENT FUND.—Sec-
tion 3306(f) of the Internal Revenue Code of 1986 is 
amended by striking ‘‘and for refunds of sums’’ and all 
that follows and inserting ‘‘, except as otherwise provided 
in section 3304(a)(4), section 303(a)(5) of the Social Se-
curity Act, or any other provision of Federal unemploy-
ment compensation law.’’. 
(c) WITHDRAWAL STANDARD IN SOCIAL SECURITY 
ACT.—Section 303(a)(5) of the Social Security Act (42 
U.S.C. 503(a)(5)) is amended by striking ‘‘and for refunds 
of sums’’ and all that follows and inserting ‘‘except as oth-
erwise provided in this section, section 3304(a)(4) of the 
Internal Revenue Code of 1986, or any other provisions 
of Federal unemployment compensation law; and’’. 
(d) IMMEDIATE DEPOSIT REQUIREMENTS IN THE IN-
TERNAL REVENUE CODE.—Section 3304(a)(3) of the In-
ternal Revenue Code of 1986 is amended to read as fol-
lows: 
‘‘(3) all money received in the unemployment 
fund shall immediately upon such receipt be paid 
over to the Secretary of the Treasury to the credit 
of the Unemployment Trust Fund established by 
section 904 of the Social Security Act (42 U.S.C. 
1104), except for— 
‘‘(A) refunds of sums improperly paid into 
such fund; 
‘‘(B) refunds paid in accordance with the 
provisions of section 3305(b); and 
‘‘(C) amounts deposited in a State fund in 
accordance with subparagraph (H) or (I) of 
paragraph (4);’’. 
(e) IMMEDIATE DEPOSIT REQUIREMENT IN SOCIAL 
SECURITY ACT REQUIREMENT.—Section 303(a)(4) of the 
Social Security Act (42 U.S.C. 503(a)(4)) is amended by 
striking the parenthetical and inserting ‘‘(except as other-
wise provided in this section, section 3304(a)(3) of the In-
ternal Revenue Code of 1986, or any other provisions of 
Federal unemployment compensation law)’’. 
(f) APPLICATION TO FEDERAL PAYMENTS.—When 
administering any Federal program providing compensa-
tion (as defined in section 3306 of the Internal Revenue
Code of 1986), the State shall use the authority provided 
under subparagraphs (H) and (I) of section 3304(a)(4) 
of such Code in the same manner as such authority is 
used with respect to improper payments made under the 
State unemployment compensation law. With respect to 
improper Federal payments recovered consistent with the 
authority under subparagraphs (H) and (I) of such sec-
tion, the State shall immediately deposit the same percent-
age of the recovered payments into the same State fund 
as provided in the State law implementing that section. 
(g) EFFECTIVE DATE.—The amendments made by 
this section shall apply to overpayments or payments or 
contributions (or payments in lieu of contributions) that 
are collected as a result of an investigation and assessment 
by the State agency after the end of the 2-year period be-
ginning on the date of the enactment of this Act, except 
that nothing in this section shall be interpreted to prevent 
a State from amending its law before the end of the 2- 
year period beginning on the date of the enactment of this 
Act. 
SEC. 4. PREVENTING UNEMPLOYMENT COMPENSATION 
FRAUD THROUGH DATA MATCHING. 
(a) IN GENERAL.—As a condition for the eligibility 
of a State to implement the exceptions to the withdrawal 
standard described in subparagraphs (H) and (I) of sec-
tion 3304(a)(4) of the Internal Revenue Code, the State 
shall certify each of the following: 
(1) INTEGRITY DATA HUB.—The State uses the 
system designated by the Secretary of Labor (or an-
other system at the discretion of the State) for 
cross-matching claimants of unemployment com-
pensation to prevent and detect fraud and improper 
payments. 
(2) USE OF FRAUD PREVENTION AND DETEC-
TION SYSTEMS.—The State has established proce-
dures to do the following: 
(A) 
NATIONAL
DIRECTORY
OF
NEW 
HIRES.—Use the National Directory of New 
Hires established under section 453(i) of the 
Social Security Act— 
(i) to compare information in such Di-
rectory against information about individ-
uals claiming unemployment compensation 
to identify any such individuals who may 
have become employed; 
(ii) to take timely action to verify 
whether the individuals identified pursuant 
to clause (i) are employed; and 
(iii) upon verification pursuant to 
clause (ii), to take appropriate action to
suspend or modify unemployment com-
pensation payments, and to initiate recov-
ery of any improper payments that have 
been made. 
(B) STATE INFORMATION DATA EXCHANGE 
SYSTEM.—Use the State Information Data Ex-
change System (or another system at the dis-
cretion of the State) to facilitate employer re-
sponses to requests for information from State 
workforce agencies. 
(C) INCARCERATED
INDIVIDUALS.—Seek 
information from the Commissioner of Social 
Security under sections 202(x)(3)(B)(iv) and 
1611(e)(1)(I)(iii) of the Social Security Act, or 
from such other sources as the State agency de-
termines appropriate, to obtain the information 
necessary to carry out the provisions of a State 
law under which an individual who is confined 
in a jail, prison, or other penal institution or 
correctional facility is ineligible for unemploy-
ment compensation on account of such individ-
uals inability to satisfy the requirement under 
section 303(a)(12) of such Act. 
(D) DECEASED
INDIVIDUALS.—Compare 
information of individuals claiming unemploy-
ment compensation against the information re-
garding deceased individuals furnished to or 
maintained by the Commissioner of Social Se-
curity under section 205(r) of the Social Secu-
rity Act. 
(b) UNEMPLOYMENT COMPENSATION.—For the pur-
poses of this section, any reference to unemployment com-
pensation shall be considered to refer to compensation as 
defined in section 3306 of the Internal Revenue Code of 
1986. 
SEC. 5. EXTENSION OF EMERGENCY STATE STAFFING 
FLEXIBILITY. 
If a State modifies its unemployment compensation 
law and policies with respect to personnel standards on 
a merit basis on an emergency temporary basis as deter-
mined by the Secretary, including for detection, pursuit, 
and recovery of fraudulent overpayments under Federal 
pandemic unemployment compensation programs author-
ized under the CARES Act (15 U.S.C. 9021 et seq.), sub-
ject to the succeeding sentence, such modifications shall 
be disregarded for the purposes of applying section 303 
of the Social Security Act (42 U.S.C. 503) and section 
3304 of the Internal Revenue Code of 1986 to such State 
law. Such modifications may continue through December 
31, 2030.