Accounting, Payroll & Pension Issues/Bonus repayment issue

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Expert: - 1/16/2012


Question
I was hired in the fall of 2011 and a month after signing my agreement, the day before starting, the offer was rescinded due to internal layoffs.  The employer cut me a check as an apology.  I had already completed payroll processes, including autopay. A month after the incident, they deposited $450 in my checking with no explanation-no letter, email, etc, I wondered if it was an error made in the first check.  In Jan 2012 I agreed to come work with them again and it was discovered that this was a bonus paid to me accidentally, I should not have received it since I was not employed at that time.  Now they want me to sign something that states that I will repay all $605 (before taxes.  I know I can claim this to recover the tax paid out, but I believe I can't recover the FICA-can the employer do that themselves?  This was not a bonus I expected or asked for, they made the mistake, and rather annoying that if I had not come back they would not be able to demand this repayment so feel like I deserve a little more respect about this.

Answer
Hi Deb,

I believe that you have a question as to a potential incorrect withholding in payroll taxes issue (e.g. FICA).

Background.  In 2011 your potential employer had paid you a bonus check and withhold various taxes.  You are hired in 2012 and was asked to return the bonus previously paid.  You are concern that that you may end up paying excess FICA taxes.

Most individuals report income on a calendar year basis.  In hindsight you will end up overpaying in 2011 and the transaction should be self-correcting in 2012.  Net-net you should be OK.

I recommend that you discuss your concern with your employer and ask that they reduce your 2012 W-2 wages by the bonus previously paid.  This should address any payroll tax concerns that you may have.

While you may be annoyed for the inconvenience that your employer had put you through, you are blessed to be working during a period of high unemployment.

Wish you much success in your new position.

Regards,
Paul Sid, CPA

Accounting, Payroll & Pension Issues

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Paul Sid, CPA CFA

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I am a CPA and CFA with more than 20 years of assisting others to address a wide variety of tax and financial issues, including: (a) tax and timing for conversion of various retirement vehicles including 401(k), traditional IRA, and Roth IRA; (b) starting date considerations for social security benefits and related tax liabilities; (c) computation of book and tax basis, gains and losses on investments, §1031 exchanges; (d) tax benefits and deductions on principal residence, vacation homes, and investment properties; (e) acquisitions of business properties, computation of bonus depreciation, and MACRS depreciation; (f) tax as related to various martial issues, including dependences, noncitizen spouses, and divorce settlement; (g) review of college funding options and tax attributes; (h) tax computation and investment considerations for fixed and variable annuities; (i) tax considerations relating to gifting by parents and grandparents; (j) tax on employee benefits programs including retirement plans, health insurance, and other benefits; (k) tax on inherited assets including assets, insurance, and other assets.

Paul Sid, CPA CFA
FinancialEdge.net

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I have over 20 years of financial, accounting, and tax experience in working with individuals and fortune 500 companies.

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BS Accounting, CPA, CFA

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