Comments on: Ask the taxgirl: Overpayment http://www.taxgirl.com/ask-the-taxgirl-overpayment/ Paying taxes is painful... but reading about them shouldn't be. Sat, 07 Nov 2009 20:18:36 -0500 http://wordpress.org/?v=2.8.5 hourly 1 By: Ed http://www.taxgirl.com/ask-the-taxgirl-overpayment/comment-page-1/#comment-8506 Ed Tue, 27 Jan 2009 15:05:54 +0000 http://www.taxgirl.com/?p=1946#comment-8506 I had similar situation and would welcome any comments. In worked at a company in Michigan that overpaid three month salary net about $12000 One month in 2007 and two months in 2008. Now in 2009 they want gross payback about $15000. They said they will correct 2007 and 2008 w-2. My question is Should I pay them gross pay back or net only. I may be able to pay it all back in one payment now. should I or not. I had similar situation and would welcome any comments.
In worked at a company in Michigan that overpaid three month salary net about $12000
One month in 2007 and two months in 2008. Now in 2009 they want gross payback about $15000. They said they will correct 2007 and 2008 w-2. My question is
Should I pay them gross pay back or net only. I may be able to pay it all back in one payment now. should I or not.

]]> By: Tom Arnold http://www.taxgirl.com/ask-the-taxgirl-overpayment/comment-page-1/#comment-7722 Tom Arnold Fri, 05 Dec 2008 12:46:05 +0000 http://www.taxgirl.com/?p=1946#comment-7722 If the amount of the overpayment exceeds $3,000, I believe it would be possible to get relief by making a Sec 1341 election. The Sec 1341 election permits the taxpayer to recalculate their prior year tax liability without the excess salary payment and reduce the current year tax liability by the decrease in prior year tax. This reduction could be reflected on the 2008 return if repaid in 2008 and not require amending the 2007 return. Depending on how the numbers work in terms of what tax brackets she was in, this might provide a better answer than simply reducing the current year income by the amount of the refund. If the amount of the overpayment exceeds $3,000, I believe it would be possible to get relief by making a Sec 1341 election. The Sec 1341 election permits the taxpayer to recalculate their prior year tax liability without the excess salary payment and reduce the current year tax liability by the decrease in prior year tax. This reduction could be reflected on the 2008 return if repaid in 2008 and not require amending the 2007 return. Depending on how the numbers work in terms of what tax brackets she was in, this might provide a better answer than simply reducing the current year income by the amount of the refund.

]]> By: Jeff Day http://www.taxgirl.com/ask-the-taxgirl-overpayment/comment-page-1/#comment-7707 Jeff Day Thu, 04 Dec 2008 04:22:21 +0000 http://www.taxgirl.com/?p=1946#comment-7707 From the question, we can't tell if she is being requested to pay back in December or next year or over a period of time. It doesn't seem to me that there should be any correcting of w-2 from 2007 since she received the monies in 2007 and thought she was entitled to same. If the employer started messing with payroll over the payback it would give erroneous answers for workmen's compensation, unemployment compensation etc. In other words if the future payroll was reduced by the payback amounts and then she was laid off the benefit from unemployment would probably be reduced. If she was injured on the job it would be a nightmare in the computation for workman's compensation. I would think the correct answer was when the monies were paid back a claim of right should be filed with the tax return. Not knowing the amount over-paid perhaps should be a credit or perhaps should be a deduction on schedule A, according to the amount re-paid. Or could perhaps be whichever is the most favorable to the taxpayer. The claim of right should allow a recoup of all taxes paid by her. I have no idea which State we are talking about, but in Indiana a claim of right would also be filed to recoup all State Taxes paid. Jeff Day EA Evansville, IN From the question, we can’t tell if she is being requested to pay back in December or next year or over a period of time. It doesn’t seem to me that there should be any correcting of w-2 from 2007 since she received the monies in 2007 and thought she was entitled to same.

If the employer started messing with payroll over the payback it would give erroneous answers for workmen’s compensation, unemployment compensation etc. In other words if the future payroll was reduced by the payback amounts and then she was laid off the benefit from unemployment would probably be reduced. If she was injured on the job it would be a nightmare in the computation for workman’s compensation.

I would think the correct answer was when the monies were paid back a claim of right should be filed with the tax return. Not knowing the amount over-paid perhaps should be a credit or perhaps should be a deduction on schedule A, according to the amount re-paid. Or could perhaps be whichever is the most favorable to the taxpayer. The claim of right should allow a recoup of all taxes paid by her.

I have no idea which State we are talking about, but in Indiana a claim of right would also be filed to recoup all State Taxes paid.

Jeff Day EA
Evansville, IN

]]>