Retention Bonus and Tax Refund
I was working in Virginia State and Here is the whole Story:-
Last year, I went to my employer asking them to increase my salary and promotion, after I got a offer from another company to negotiate and see if they can match the offer new company is giving. They said they can increase my salary but need to check company policy. This happened in Sept (2014), Then in OCT (2014), I got a letter from my manager, that they would increase my salary but there would be 2 components, one is Retention bonus (of X $), and per month increase of Y$ per month. The offer stated that If I agree to the terms and conditions, I would be paid X$ (Tax would be deducted), but I would have to sign a bond of 1 year, and If I leave in between, I will have to pay full amount.
I mailed my manager back, stating I don't accept this offer and didn't sign any agreement.
They went ahead and deposited the amount (after tax deduction) in my bank account. In that process out of X$ some part (Lets say Z$) was deducted in TAX, and rest (X-Z)$ got deposited to my account. I immediately reached out to my manager asking why it was deposited since I never agreed to the offer and didn't sign any thing, and raised an internal company ticket for the same. I kept on following, but no response.
Finally I accepted offer from the same company which extended me the offer initially, and joined them on Dec 16th 2014. My previous company withheld my Dec Months First pay check, which is equal to the amount of money which I got as a part of Retention bonus (X-Z)$ in my bank account. As a part of my goodwill I didn't object it, when I should have, Since I worked for 2 weeks in Dec 2014, but decided to give it back , since I didn't earn it and I should help in returning back whatever is not mine.
Now the real issue started when they started asking me to pay the TAX part which (Z$). They said I can claim it from IRS. My TAX return is already filed. Below is the reply what I got, which I didn't quite understand :-
"........Ok so you received X$ in error, (X-Z)$ was deducted “before tax” on your December payroll, leaving Z$. Nothing will be done to the 2014 W2, it has already been netted down by the (X-Z)$. The Z$ should be repaid to the company. Since it will be paid in 2015 per IRS regulations there will be no tax impact to any W2. You should be able to take a credit on your 2015 tax return for the remaining repayment........"
Are they saying that I will get a new W2 form for 2015, and then I can claim it next year return?
Also I have below questions :-
1. Am I entitled to pay any part of money back to them, since I never signed any agreement with them regarding Retention Bonus.
2. Why are they asking me to pay the TAX money, and why I should claim it from IRS and pay them, Can't they do the same (Tell IRS, the money was deposited in error).
3. What legal actions can my previous employer take, and what are my options.
Will appreciate any help greatly.
Thanx
Re: Retention Bonus and Tax Refund
Based on your description of events, I have some concern that they have taken back money from you that was still included in your W2. If I am correct, then you were taxed on money you never received. Therefore, paying them the withholding back would literally cause you to pay tax on money you never received, twice.
Therefore, the first thing that I would do is make sure that the money was never included in your W2 (the pay for the first two weeks of December), and if it was, insist that they issue a corrected W2 and amend their 4th quarter 941 to retrieve the tax. Then you can amend your return to reflect less pay and withholding.
If they did not include it in your W2, they should still correct your W2 to reflect less withholding and amend their 941 to retrieve the withholding, and you would then amend your return and pay back the IRS for any excess refund you received/tax balance you might owe.
Re: Retention Bonus and Tax Refund
Thanx IIworking for replying. Appreciate you taking time and answering my question. I checked the W2 form, and it doesn't include the pay for the first two weeks of December.
Please help me getting below answers :-
1. Am I entitled to pay any part of money back to them, since I never signed any agreement with them regarding Retention Bonus.
2. Why are they asking me to pay the TAX money, and why I should claim it from IRS and pay them, Can't they do the same (Tell IRS, the money was deposited in error).
3. What legal actions can my previous employer take, and what are my options.
Re: Retention Bonus and Tax Refund
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srj
1. Am I entitled to pay any part of money back to them, since I never signed any agreement with them regarding Retention Bonus.
If they paid you in error, then you will be required to pay back any money that should not have been paid to you. If the money they paid you in error was the same amount that they later did not pay you that you were owed, then you should not owe anything else.
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Quoting
srj
2. Why are they asking me to pay the TAX money, and why I should claim it from IRS and pay them, Can't they do the same (Tell IRS, the money was deposited in error).
They are asking you to pay it because they effectively paid it to you. If the total was $2000, and you recieved $1500 of that, and they withheld $500 for taxes, then they are still out $2000 overall.
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Quoting
srj
3. What legal actions can my previous employer take, and what are my options.
They can sue, if they do sue you can provide evidence you do not owe money.
For the sake of making everything clear. I am going to try to walk through this to make sure I understand what happened.
Prior to the retention bonus you were paid normally
You received in error the retention bonus equal to 2 weeks pay
They continued to pay you properly until you left
When you left they held your final paycheck also equal to two weeks pay, as repayment for the bonus.
Now they demand you repay the withholding from that paycheck.
As llworking stated who owes who what at this point depends on your W-2
If your W-2 includes all of your regular pay and withholding plus the pay and withholding from the retention bonus, plus the pay and withholding from your last 2 weeks, then the company needs to issue a new W-2 and figure it out on their end.
If your W-2 includes all of your regular pay and withholding plus the pay and withholding from the retention bonus, but does not include the pay or the with holding from the last 2 weeks then the situation should be settled, and essentially you were just paid early for the last 2 weeks. It was not handled properly, but the money all works out.
If your W-2 includes all of your regular pay and withholding plus the pay and withholding from the retention bonus, and includes the withholding, but not the pay from the last 2 weeks, then they are correct, that you still owe the equivalent of the tax withholding. If they will accept just the Federal and State income tax, then you can send them the money they are asking for, as it should have been reflected that you overpaid, and you would have received it in your refund. Otherwise they need to handle it on their end, and issue a new W-2, however this will lead to you amending your return, and likely owing some of your refund back to the government.
Re: Retention Bonus and Tax Refund
Thanx Brownj12 - I think the second situation is what my case qualifies for :-
If your W-2 includes all of your regular pay and withholding plus the pay and withholding from the retention bonus, but does not include the pay or the with holding from the last 2 weeks then the situation should be settled, and essentially you were just paid early for the last 2 weeks. It was not handled properly, but the money all works out.
My W-2 includes all of my regular pay and withholding plus the pay and withholding from the retention bonus, but it doesn't include anything from last 2 weeks. And I think you are correct, They should think that I was paid 2 weeks salary (inclusive of my Leave accural etc) in advance.
What I can see from my Dec -1st Pay cycle payslip is that there is no TAX. So they have withheld that money, am not sure why did they do that.
Also to make clear. Lets say 8000$ was retention bonus what they processed, and after tax (which includes Federal, Stat TAX, Medicare, Socical Security), what got deposited in my account was lets say 4500 $, so tax amount was 3500$.
They withheld my Dec Pay check which was 4500$ (in pay slip I don't see any TAX deducted), and they have subtracted retention to nullify it.
Do you still think I owe them money, Kindly advise?
Re: Retention Bonus and Tax Refund
On the tax issue only, this is basically an overpayment. IRS rules are that if the repayment occurs in the same year as the overpayment, then it is paid net of taxes and the employer adjusts the tax deposit. If instead the overpayment is repaid in the following year(s), the payment is made gross (including taxes) and the employee gets the refund from IRS. Agreed the W2 needs to be corrected by the employer if it includes the overpayment.
State law says whatever state law says. Often it follow IRS but not always.
Not the question but so-called "conditional wage payments" (what we see here) are not directly addressed in the IRC, but treating them as an overpayment is not optimal. There is some advantage to formally structuring the payment as a loan, the conditionally forgiving the loan at a later date.
Re: Retention Bonus and Tax Refund
Can anyone help please on this matter.