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I was recently laid off when my position was eliminated. My employer offered me
3-weeks severance pay but accidentally sent me a check for 6-weeks
severance. Obviously they want part of that back. On the original check 12
went into my 401-K so they agreed that I would not owe them that portion back.
However, I do not want to end up in a bad tax situation and I am looking for
some advice. I have a spreadsheet of the original check and all deductions
compared to what my check should have been and the net difference that they
want returned. I can send you this spreadsheet if it will help. Thank you so much.
Asked on August 11, 2016 under Employment Labor Law, Pennsylvania
SJZ, Member, New York Bar / FreeAdvice Contributing Attorney
Answered 5 years ago | Contributor
Legally, yoiu need to repay the entire (gross) portion of the overpayment, since an accidental overpayment does not give you any rights to the money, less any amounts or portion they voluntarily agree to let you keep (e.g. the 401k portion). If as a result you overpaid on taxes, you will get money back at tax refund time. Example, using simplified number: say your base salary is $50k, lets's simply the taxes to assume you pay a straight 25% in income taxes (and have that full amount withheld from you checks), and say you were paid--and had tax withholding of $2,500 taken out--a $10k severance when you should only have been paid $5k and had $1,250 taken out. You need to repay the extra $5k (the full, gross amount); that means you are temporarily down $1,250, since you repaid amounts already withheld from taxes.
At the end of the year, since you had withholding of 25% on $60k, or $15k, when you taxes should have been 25% of $55k, or $13,750, you will get $1,250 back as a tax refund. As long as you keep good records so you can account for everything properly, it will all wash out in the end.
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