Unemployment compensation wants to be repaid. So do I claim it, or what should I do since they want the money back?

I was paid unemployment. My work lied and said I was fired when I was let go due to slowing work conditions. Unemployment now wants to money back, and have said they will have the IRS deduct it to repay them. So should I claim it, since it seems that will lower my refund, if they are planning on taking back the $1038 anyway?