How much should I be required to pay regarding an accidental bonus overpayment?

Recently, I was overpaid a bonus in error. It was about $12,000. However, after all the taxes were deducted, I only received about $8,000. Now I need to return this overpaid bonus in the same fiscal year. My employer is deducting the entire 12k from my few paychecks even though I onu netted 8k. Is employer correct in deducting 12k from my payroll? If yes, how do I recoup that 4k loss or what should employee and/or employer should do in this case?

Asked on June 6, 2017 under Employment Labor Law, New Jersey


M.D., Member, California and New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

As you seem to realize, if you were mistakenly overpaid, you have to return the money. Otherwise you would be "unjustly enriched". If you do not return it voluntarily, you can be sued for it. As to how much you owe your employer, you have to return the gross (full) amount that your employer paid out. This includes the taxes, not just your net paycheck. That having been said, the money withheld for your taxes will provide you a tax benefit at the end of the year end; you will either owe less or will be entitled to a larger refund due to the overpayment.

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 3 years ago | Contributor

Yes, you need to repay the whole $12k. Even though you only netted $8k in your pocket, $12k was paid either to you or *for* you: the extra $4k was paid for you to IRS and if you don't repay it, will give you a $4k windfall--your taxes will be $4k lower than they should be, because $4k of them will have been prepaid for you by your employer. You will get the money back at the end of the year at tax time: you will either get $4k more of a refund, because more taxes were paid than should have been based on your income, or else owe $4k less if you would have owed money. Or knowing you've got a $4k tax "credit" (so to speak), you can reduce your withholding from now to year end, and get a bit more out each paycheck. Speak with your tax preparer about the best strategy for you.

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