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Reimbursing pretax deduction from previous year

Employee had had pretax deduction (medical prem) in 2016 in error. HR dept forgot to stop the deduction beginning Jan 2016 and it continued on to May 2017. The amount owed to the employee is $1006 in 2016 and 527 in 2017. Howe do I process the 2016? How about 2017? Can I use the same pretax deduction code with negative amount? We are California employer. Any help is greatly appreciated. Thank you


  • Not my area of expertise, but this is the reason you make employees file new paper every year. I question that you "owe" the employee anything because if is their f***up, not yours. You did exactly what THEY told you to do.

    Now if you are feeling especially into pain this week.

    • You need to re-file all 941s, all state quarterlies, the 940s, the state equivalent and all W2s for all your involved quarters/years and request refunds from IRS/CA. Expect penalties and lots of follow up.
    • Also, re-read your company's Section 125 plan and make sure you are not stepping on something. Very bad things can happen if you fail to exactly follow to the letter your plan rules.

    I used to have a sign on my desk that said "a mistake on your part does not constitute an emergency on my part".

  • If you would re-read the original post, it was the Human Resources Department who forgot to stop the deduction, not the employee.

  • But the employee should have noticed much sooner that the deduction was not stopped. 18 months or so is a long time to have it incorrect and not say anything! And I do agree with DAW that it is best HR and Payroll business practice to require new elections each year so that continuing deductions aren't made incorrectly like this.

    (The employer might actually also have issues with stopping it now mid-year if it falls under Section 125 and is NOT a valid "change of status" reason. i.e. it's much more than just a payroll adjustment problem if it is a pre-tax benefit where the employee must make the change prior to the start of a new plan's not just as easy as fixing it on the payroll side. It might be that deductions MUST continue through the end of 2017 and then the employer can figure out how to make the employee whole outside of the plan....what documentation does HR have that the employee asked for the deduction to stop? Hopefully something signed in writing and dated prior to 1/1/16? Doesn't really matter whose created the problem, there is not an easy solution since you are talking about a qualified plan -- you might check the plan document to see if there is anything in it on how to correct mistakes or how long the employee has to notify the employer of a mistake, but I honestly doubt it for a health plan)

  • True, but we had an employee who changed departments - moved to Fire Department but was in administration. Firemen don't have Social Security withheld but admins do; however, HR deleted his SS deduction and he didn't notice until he went to do his taxes at the end of the year - about 6 months' worth. We ended up covering our portion and his. It's amazing how many don't look at their pay advices.

  • Glad I have missed that one. [bleep happens]. If it happens more then once, then someone gets fired. Maybe the payroll manager. All employers have problems, although not usually the one the last poster mentioned. First time it happens, you can plead ignorance. 2nd and 3rd times the plea is stupidity and that gets old quickly.

    My last employers had a lot of visa people. Which is fine. But visas expire. They change types. When these things happen, tax requirements change. In a perfect world, HR would keep track of such things and follow up. I have never lived in such a world. Payroll did the following up on visas, not because it is normally a payroll function, but because HR's mistake becomes payroll's major problem. That happens enough times, you take the weak link out of the loop.

    Same thing with deductions. If HR is not competent to handle deductions, talk to Very Senior Manager and get someone else to do it. But this notion that it is payroll responsible that an error was made 18 months ago, neither the employee or HR caught it, that payroll did EXACTLY what they were told to do and it is somehow payroll's fault leaves me very cold. If you are going to make me clean up your messes, give me the staffing to handle the front end and avoid the mess in the first place.

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