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Managing wage repayments: the employment tax impact of the claim of right doctrine
Get the essential facts about the employment tax impact of wage repayments that cross tax years and other state laws to consider when planning to deduct wage advances and overpayments from future wage payments.
Most employers will encounter the need at some time to recover wage advances and/or wage overpayments from employees. For instance, an employment contract may require the repayment of a sign-on bonus or relocation reimbursements if the employee resigns before a set date; wages may be overestimated when a disaster prevents the normal automated processing of wages; or a payroll error may result in an overpayment.
In this special report, we explain the special payroll tax rules that apply when the repayment of wages occurs in years subsequent to a wage advance or overpayment and state/local wage-hour laws that can place restrictions on the manner and amount of future wage deductions.