If an employee has been overpaid by the University, the overpayment is a legal debt and must be repaid in full. Payroll will initially act as the collection agent for the University.
When a department determines that an employee has been overpaid, the department must notify Payroll in writing. Details must include the period of overpayment, the exact gross salary/bonus amount involved, and the reason for the overpayment. Notification should be sent to firstname.lastname@example.org.
University Collection Method
Notification of overpayment of wages will be provided to the employee by the Payroll department. Departments should not initiate collection. Repayment may be made by cash, personal check, through payroll deduction (if actively employed), or by signing a notes receivable.
If payment or other approved arrangements are not made after this notification, the following collection processes will occur:
Active employee: if employee is active within the University's payroll system, "auto recovery" will be implemented to reduce the employee's wages until overpayment is recovered in full.
Inactive employee: individuals who are no longer receiving compensation through the University's Payroll system, will be classified as a "delinquent" account and referred to the Bursars' Office for further collection action.
In general, the employee is responsible for the repayment of the net pay received in error. However, there are certain deductions that have been remitted on behalf of the employee and can not be recovered. These deductions must be included in the repayment amount (i.e. child support or Credit Union deductions).
Current Calendar Year: If repayment is made in the same calendar year as the overpayment, Payroll will reduce the employee's taxable wages, and associated taxes and deductions for the calendar year.
Subsequent Calendar Year: If repayment is not made in the same calendar year that the overpayment occurred, the wages must be reported as taxable income and federal and state taxes can no longer be adjusted for that calendar year. The employee will then be responsible for repaying any federal and state taxes withheld on the overpayment to the University. This will increase the amount owed by the employee for the overpayment.
The wages paid in error in the prior year remain taxable to the employee for that year because the employee received and had use of those funds during the calendar year. The employee is not entitled to file an amended tax return for that year. Instead, the employee is entitled to a deduction (or credit, depending on the amount repaid) for the wages repaid on their personal income tax return in the year of repayment. Once repaid, Payroll will issue a corrected W-2 form, reducing only applicable Social Security and Medicare wages and taxes. The employee will be responsible for consulting IRS Publication 525 in relation to reporting the repayment of wages for a prior year.
Departmental Adjustments pertaining to Overpayments
The departments charged at the time of the overpayments will not receive credit until the overpayment funds are collected in full. Timely reconciliation of departmental payroll charges is essential because a delay in reporting an overpayment may increase the amount owed by the employee if it crosses calendar years.