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Collecting overpaid wages in subsequent years

We realize that Gross should be paid back if employee repays an overpayment in subsequent years.
Without our knowledge management and HR have agreed to collect Gross less Fica/Medicare.
Gross 10,000.00
Fica/Med (765.00)
FWT (2,200.00)
SWT (500.00)
NET - 2019 6,535.00

Employee pays back
Gross 10,000.00
(765.00) Less Fica/Med
Repaid in 2020 $9,235.00
There is No chance for us to recoop the additional dollars. How would you prepare the Employees W2c
Your time, assistance and guidance is much appreciated.

Comments

  • Hello alanzawaldron
    No chance, huh? Well, maybe.
    Under the regulations - the employee repaid only $9,235 of the gross over payment of $10,000. By regulation, this repayment consists of
    706.48 FICA
    2031.70 FIT
    461.75 SIT
    6035.07 Net Pay
    9235.00

    The employer must give the employee a receipt for $9,235, refund $706.48 to the employee for the repaid FICA, and obtain a receipt from the employee for $706.48 (as well as some required statements). The employer may then claim a refund from the IRS for $706.48 (ee share) and $706.48 (er share) on Form 941-X. The W-2c for the year of overpayment will adjust the Social Security and Medicare wages by $9,235 each and the Social Security tax by $572.57 and Medicare tax by $133.91. Income tax wages and taxes are not changed, and the employee may only claim a credit for refunding $9,235 on the employee’s 2020 1040 Form (no effect on 2020 payroll).

    This leaves $765 still over paid. This consists of
    58.52 FICA
    168.30 FIT
    38.25 SIT
    499.93 Net Pay
    765.00

    That is under the regulations.

    However, you may be able to treat the payment of the $9,235 as a repayment of $10,000 with a simultaneous refund of $765 FICA tax to the employee. The employer must give the employee a receipt for a $10,000 repayment and obtain from the employee a receipt for $765.00 refund of overpaid FICA by the employer (along with the required statements). BTW, the required statements are under penalties of perjury. Just sayin.

    Although not strictly in accord with the regulations, having the appropriate documentation should achieve what the employee, management, and HR asked you to do. However, I would also get a written statement from HR and Management that states they advised required you to handle this situation this way and that they understand it is not quite in accord with the regulations.

    And, this is really important --- I did not say this is allowed – my usual recommendation for this sort of thing is to exchange simultaneous checks at the time of repayment (employee writes one for $10,000 and Employer writes one for $765) and then the dotting of the “t”s is matched by the crossing of the eyes (apologies to Walt Kelly), everything is done according to the regs and nobody is saying anything happened that did not actually take place.

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