If an employee has been overpaid by the University, the overpayment is a legal debt and must be repaid in full. It is the policy of the University of Virginia Payroll Department to initiate recovery efforts on all payroll overpayments as soon as the discrepancy is detected. Departments should not initiate collection.
When a department or employee determines that an overpayment has occurred, the department or employee must notify Payroll in writing. Details must include the date the issue was discovered, the period of overpayment, the amount and type of overpayment (i.e. Regular wages, bonus, goal pay, etc.) and the reason for overpayment. Notification should be sent to email@example.com.
It is the intention of the Payroll Department to work amicably with the affected employee, while acting responsibly in administering state regulations, to affect an orderly return of all excess payments to the University without causing undue financial hardship to the employee.
Once the Payroll Department has calculated the amount of repayment to the University, the employee will be sent an invoice by the Accounts Receivable department. The employee can repay the debt by credit card, personal check, or directly through a payroll deduction (if actively employed.) The fees charged the University for processing credit card payments will be passed on to the department originating the document.
The amount of overpayment collected by the Payroll Department will vary depending upon whether the current and/or prior calendar year records must be adjusted.
- Current Calendar Year – If repayment is made in the same calendar year as the overpayment, the employee will repay the net amount of the overpayment. The Payroll Department will reduce the employee’s taxable wages and associated taxes for that calendar year and the year-end W-2 Form is correct.
- Prior Calendar Year(s) – If repayment is not made in the same calendar year that the overpayment occurred, the employee must repay the net amount of the overpayment plus the associated federal and state taxes. (Taxes are permanently credited to the employee on December 31 and cannot be subsequently recalled). The Payroll Department can only recover the applicable Social Security and Medicare taxes. Since the University can recover the Social Security and Medicare taxes, the University will reduce the repayment amount by those associated taxes, if applicable. To this end, the employee must provide a written statement that he/she will not request a refund of Social Security and Medicare taxes as well from the IRS. This is to be done using the FICA Release Letter form.
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 that 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 upon the amount repaid) for the wages repaid on their personal income tax return in the year of repayment.
Once repaid, the Payroll Department will issue a corrected W-2 Form, reducing only applicable Social Security and Medicare wages and taxes. The Payroll Department will also issue a Statement of Corrected Income which details the amount repaid by the employee and the year repaid. The employee can use this Statement for their current tax return for a credit or a deduction. The employee should consult the IRS Publication 525 (Repayments) with respect to reporting the repayment of wages for a prior year.