Yup. Both state and federal labor and employment laws give employers the right to garnish an employee’s wages — subtract chunks from a worker’s paycheck — in cases of overpayment. California offers the strongest worker protections against bosses clawing back money that they think was overpaid.

How do you handle payroll overpayments?

Here are two options:

1. Ask the employee to return the net amount paid and have the payroll service reverse the erroneous paycheck. This approach may work if payroll tax returns have not been filed for the quarter affected.
2. Reduce the employee’s future wages for the amount of the overpayment.

How long does employer have to repay overpayment?

Collecting Overpayments You can collect overpayments up to eight weeks prior to notification and you have a maximum six years to do so. You can ask the employee to cut you a check or deduct it from her wages.

What happens if you are accidentally overpaid by a federal employee?

Recent news that nearly 10,000 soldiers were asked by the Pentagon to repay bonus overpayments may have other federal employees wondering what happens if they find themselves in a similar situation. The author provides some details on how agencies usually handle overpayments.

What happens when an employee repays an overpayment?

If the employee repays the advance or overpayment during the same year they received it, the employer should exclude the amount from the employee’s income when filing the W-2. The employee should repay the net amount and the employer will need to submit proper amended federal and state returns.

Where to post an overpayment to miscellaneous income?

The only place the deduction amounts could reasonably be posted is to miscellaneous income. You can see how a domino effect of the problems begin to pile up: The employer pays extra payroll taxes on the overpaid wages. The employee is forced to repay more money than the error generated.

Do you have to pay back taxes on overpayments?

The employer can’t collect federal or state income tax withheld in a prior year, so no correction can be made for income taxes withheld. The employee can, however, claim a deduction on their personal income tax return for the tax they repaid.