Matt Weidinger explores attempts to cut down on a significant piece of government fraud and waste.
The Trump administration is threatening to use “every available enforcement tool” to compel states to better protect unemployment benefits against fraud and abuse, which is elevated following an especially severe flareup during the pandemic.
The administration’s warning specifically suggests the possibility of cutting federal unemployment insurance administrative funding in states with high error rates.
Yet that warning includes a more powerful yet unspoken threat — of reducing federal benefits during the next recession unless states show they can protect those funds from repeated abuse.
The Department of Labor warns that the Trump administration is “officially putting governors on notice” that “the American people will no longer tolerate the blatant waste, fraud, and abuse of their hard-earned tax dollars — no state should allow it either.”
The department’s warning specifically threatens “states that fail to safeguard these programs” by “withholding administrative funds…for the first time in history.”
Federal administrative funds, provided annually to states since the 1930s, are intended to promote “proper and efficient administration” of the UI program. Washington provides states around $4 billion per year to support program administration—a fraction of the $39 billion states spent on UI checks nationwide in 2025.
The administration threat suggests that, unless they do a better job preventing UI fraud, some states could lose some or even all of the federal dollars they now receive to administer those state benefits.
In most years, only state benefit dollars are at risk of being misspent, as federal benefits offered during high-unemployment periods are not available.
During the twelve months ending in June 2025, Labor Department data indicate almost not federally funded benefits were paid while states had an average 12.7 percent overpayment rate (which includes fraud and nonfraud overpayments) for state benefits.
Another Labor Department report finds that New York, driven by a 22.3 percent overpayment rate in 2025, was the leader in dollars overpaid at $735 million, followed by $546 million in overpayments in California.
