Overpayment by employer - gross vs. net repayment

November 14, 2014 1:09 PM

I just received an email from the company through whom I contract, claiming that they had paid me twice for a recent week. Obviously they now want that money back; however, they are asking for the full amount I was paid, NOT the amount I received after taxes. I am assuming I am on the hook for the whole [cursing] thing, but can someone tell me how this works?

Since this company deducts taxes before they pay me, I never actually received the gross amount they're asking for, so paying them back that gross amount puts me in a negative-balance situation. Is there any point in arguing with them over this, or is this something I need to - um - somehow work out with the government? Assuming the latter, can someone tell me what I need to do to recover that difference between gross and net? The amount isn't huge - maybe a couple hundred dollars - but I'd rather not essentially be paying them for the privilege of working.

This is all US-based, by the way; I'm in Pennsylvania and the contracting company is in Texas. If the answer is that I have to talk to a lawyer or financial advisor, can you give me an idea as to what kind of lawyer or financial advisor I need to seek out? I'm really hoping this is something where the answer is either that I SHOULD push back or else that there's a specific tax form for such a situation, but I am so clueless when it comes to finance that this whole thing is a little overwhelming. Thanks for any help you can provide!

posted by DingoMutt to Work & Money (13 answers total)

You should pay them back the net amount. They need to make the adjustments to taxes on various forms which their accounting/payroll department should be able to handle.
posted by dzot at 1:20 PM on November 14, 2014 [1 favorite]

You'll get it in a tax refund, unless you wind up owing it anyway. Depending on how much it is, you can probably adjust your withholding for the rest of the year to make up for it.
posted by chesty_a_arthur at 1:21 PM on November 14, 2014

Not a tax person, but if this is an on-going relationship I would suggest to them that they withhold the gross amount from your next payment(s) which would avoid needing to make complicated adjustments for everyone. I would also first confirm to my own satisfaction that they had in fact double paid me.
posted by uncaken at 1:21 PM on November 14, 2014 [4 favorites]

Response by poster: Not a tax person, but if this is an on-going relationship I would suggest to them that they withhold the gross amount from your next payment(s) which would avoid needing to make complicated adjustments for everyone.

This is one of the solutions they're proposing (the alternative being that I send them a money order for the gross amount), but I don't understand how this is right - if they only ever paid me the net amount in the first place, why would they now withhold the gross amount?

My totally knee-jerk, not at all finance-savvy thought is that dzot is correct that I should only be paying them back the net amount, and that THEY should be dealing with the tax adjustments on their end since they're the ones who withheld the deductions in the first place, but I really cannot stress how much I do NOT know about finance, taxes, and the like ... chesty_a_arthur's suggestion also sounds sensible, or at least reassuring that I'll end up with the correct amount back eventually, but again - arrrgh, how do I money ...
posted by DingoMutt at 1:36 PM on November 14, 2014

Best answer: You did receive the gross amount. It's just that part of it was automatically forwarded to the government on your behalf. I haven't done payroll for a bit now but I'm pretty sure they ought to have a way to just adjust an upcoming payroll tax deposit to account for it, but--have you actually discussed this with whoever at the company does the payroll stuff? Are they outright refusing to do adjustments?

Anyway, again, you wouldn't be paying them, you're still getting the benefit of 100% of your gross paycheck, even if you're only getting a portion of it in cash.
posted by Sequence at 1:40 PM on November 14, 2014

They made a mistake. As a result, they sent one check to you, and another to the government, the two totaling to the gross amount. Why on earth they would think it was your responsibility to recover the funds that *they* sent to the government is beyond me. There must be channels for them to do that, they just don't want to work that hard.
posted by bricoleur at 1:41 PM on November 14, 2014 [3 favorites]

If they simply do not pay you for the next period and you keep the overpayment, you have paid them back the net and they have dealt with the government ASSUMING your w-2 at the end of the year reflects the correct amount of Gross that you were net of this correction. At the end of the year, your w-2 will reflect 52 weeks pay for 52 weeks work.
posted by 724A at 1:42 PM on November 14, 2014 [3 favorites]

Best answer: The simplified concept: of your $100 gross paycheck, $25 went to the IRS and $75 went to you. At the end of the year, they submit a form the the IRS that says they paid you $N, (the amount they should have paid you) and you fill out tax forms saying that you owe the feds some amount $M. The feds check their records and see that you already set aside money from each paycheck to be $N*0.25, plus an extra $25 from that one erroneous payment. The IRS sends you a refund check that includes that extra $25.
Your employer, knowing that the IRS will give you that $25 back in April, wants to be sure you don't keep it, therefore they're asking for the whole $100 back now. This is inconvenient to you, but perfectly logical. Essentially yes, they sent that $25 to the IRS, but it still has your name on it, it still belongs to you (until all the forms are filled out in April to decide who it belongs to).

Now, the real deal: Of your $100 gross paycheck, $65 showed up in your bank account, $25 went to the IRS and state taxes, and you'll get refunded, and another $10 may have gone medicare, social security, etc, and you will not get refunded that part. This might be worth arguing about. But first, you have to read the fine print on the paystub - this may not apply since you were a contractor.
posted by aimedwander at 1:52 PM on November 14, 2014 [3 favorites]

Why on earth they would think it was your responsibility to recover the funds that *they* sent to the government is beyond me.
They paid this money in the OP's name and the OP gets credit for paying it at the end of the year on their W-2.
posted by soelo at 1:55 PM on November 14, 2014

Seconding the advice to just have them deduct the overpaid gross amount from the next pay period. I see aimedwander already went into the math, but the social security/medicare/etc. stuff is why it's going to be much less of a hassle for all parties involved to just withhold the extra gross pay until the balances are even.
posted by Aleyn at 1:57 PM on November 14, 2014

Also note that they should be deducting the gross amount against your gross pay for the next pay period, not against your net pay. If they're trying to deduct the gross amount from your net pay, then that's exactly the same as if you gave them the money order for the difference. I'd assume that they'd be doing the deduction against gross pay, but it's a good idea to check.
posted by Aleyn at 2:04 PM on November 14, 2014

Response by poster: Okay, so after a few back-and-forths with payroll, they agreed that I should only be paying them back the net amount I received, so I'm going to mark this resolved. Thank you SO MUCH, all of you, for helping me with this - I marked aimedwanderer's breakdown as a best answer because it was just what I needed to help reach through to my Michael Scott-levels of financial acumen, and Sequence's answer for helping to assure me that this IS something I could ask my company about without looking like an idiot, but really all of your answers helped me keep a level head while I worked on getting this sorted. You guys are the best!
posted by DingoMutt at 2:13 PM on November 14, 2014

Response by poster: (er, for the record, I do realize that the outcome doesn't match the breakdown aimedwanderer and others described, but knowing that I wasn't going to be out all that money even if they did insist on deducting the gross was immensely reassuring ... and I'm just glad that I won't have to flex with them about the medicaid, etc. Thanks again!)
posted by DingoMutt at 2:23 PM on November 14, 2014