Employer reveals they've been inadvertently underpaying me for years
April 17, 2014 5:41 AM Subscribe
Due to an accounting error, my employer has not been paying me my full salary for the last several years. I'm in sales, and I get paid on commission, so my paycheck fluctuates month to month - I never even noticed my paycheck was always secretly slightly less than what it should have been. My employer just discovered their error and told me immediately. Which I hugely respect. We have a good employment relationship and we'd all like it to continue. They're saying they now owe me about $145k plus interest, and are prepared to write me a check, but they know this raises some tax issues for me.
posted by anonymous to Work & Money (20 answers total) 5 users marked this as a favorite
I'm aware of some of the US tax implications here: I asked both a tax attorney and an accountant, and both agreed that I will owe 2014 taxes on this sum, and that it will put me in the highest tax bracket (39.6%) for year 2014. However, if I had been paid on time-- that is, in all those the prior years in which I actually earned the pay-- my overall tax burden would have been less than what it will be next year. Or to put it another way: I've been in the 33% tax bracket during the entire period of my employment, and would have still been in the 33% bracket all along if they had not made the accounting mistake.
My employer understands how this will complicate my current tax situation, and has offered to either pay me something on top of the back pay I'm owed plus interest, in order to make up the tax difference, and/or to pay into an retirement account for me - or a trust, or some other valid means of lawfully avoiding/delaying taxation. So far they're extremely willing to work with me to correct their mistake. What should I be asking for? How do I even begin to calculate this to make sure we all have the numbers right? What else would you do in my shoes?