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I was laid off back in March due to COVID. My employer messed up and delayed our severance payments, so instead, they offered to cancel the original checks and send us all wire payments.

When we got the wire payment, no taxes were taken out, so the payment was the agreed-upon GROSS instead of NET. Now they are demanding we repay them for the unheld taxes (thousands of dollars), or else they'll consider legal action.

My accountant told me I can just settle it with the IRS when filing next year, but can my former employer really take legal action or involve collections here? Is it just a threat? Not sure why they're so concerned when it's really the government's money...

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    If they should have given the government those thousands of dollars and they didn't, it seems a good reason to be concerned. Specially if the government or an auditor has pointed it out.
    – Ángel
    Commented Sep 19, 2020 at 2:04
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    The question is, even though the company actually paid you gross, did they pay the withholding to the IRS anyway? If so, then they simply overpaid you (as the tax might already have been paid) and then it becomes a matter of whether you are required to pay back overpayments in your jurisdiction. I have no idea about the US, but in the UK you are required to repay overpayments. So, the question is, did they actually fail to calculate the tax or just fail to pay you net?
    – user28517
    Commented Sep 19, 2020 at 2:32

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No

Your employer has probably already paid the tax to the IRS and, even if they haven’t, they are legally obligated to and would face penalties if they don’t. Notwithstanding, this and the fact that they are your employer is irrelevant.

The facts are simple: someone owes you money, they paid you too much. The legal consequences are also simple: you owe them the overpayment. And, yes, they can legitimately take action to collect.

If you were an ongoing employee, the employer couldn’t deduct money from your wages without your agreement or a garnishee order. Other than this, an employer is no different from any other creditor.

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    There have been employers in the past that have taken out taxes, but 'failed' to send to IRS.
    – paulj
    Commented Oct 19, 2020 at 13:21
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    @paulj that’s a matter between the employer and the tax authority. The employee has paid their taxes by having them withheld by the employer.
    – Dale M ♦
    Commented Oct 19, 2020 at 19:58
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    @Dale Depends on your location. In some places (many actually) it’s theft, but there is the question who the employer stole from: tax office or employee.
    – gnasher729
    Commented Jul 17, 2021 at 14:07
  • What steps should the employee take to ensure that the IRS is properly informed of the exclusion of money sent back to the employer from the net payment the employee received? Conveying money to the IRS with an explanation, and letting the IRS either deduct the payment from the employee's taxes due or refund the employer for double-payment would seem like it would create the clearest paper trail.
    – supercat
    Commented Apr 4 at 17:30

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