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Posted: 2/27/2013 12:31:51 PM EDT
I have a current tax client who worked at a university as a coach. He departed from the job on a bad note. He received some severence pay. His wife was also a student. The university mistakenly paid him $5,000 and also credited his wife's student account $5,000. The university discovered the mistake and wants him to pay back the $5,000. He did not pay it back and received a 1099 with $5,000 in box 3-other income. Of course he will have to report the $5,000 on his tax return. My client wonders if he still really has to pay it back. With the university declaring it as other income, can they still take him to court for it? Or have they simply wrote it off like a credit card company does when they issue you a 1099C for cancellation of debt. He has the money, but he is still pissed and wants to screw them if he can. What do you think will happen if he doesn't pay it back? TIA.
Link Posted: 2/28/2013 5:22:37 AM EDT
it sounds like they have "wrote it off".

Are they still actively pursuing him for reimbursement? Just because they are putting it on a 1099 doesn't mean he can't be sued for it later.

I am an Accountant in a Finance Department, I just phoned my payroll person to get a clear answer on how this type of item is handled:
If someone is overpaid and they repay the amount in the same year, it is netted out on the W2 / 1099.
If someone is overpaid and they repay the amount in a subsequent year there is no manual adjustment on a W2 / 1099, instead there is a provision on the 1040 long form to report wages/ compensation refunded to an employer and the (ex)employee must take that credit themselves.
Link Posted: 3/12/2013 7:05:37 PM EDT
I just heard back from the client. The University is holding his wife's grades/graduation due to non-repayment. Here is his note:

As "wife" has explained we are in quite a predicament with the University and the payment error in my separation agreement. I have not had much time to research this, however the separation agreement is very vague (no specific dollar amount) and I believe they will have a difficult time claiming this money. Everything I read about severance package overpayments seems to be a very secure situation for the overpaid if there is no specific dollar amount mentioned in the agreement. What do you think?

Here are the key paragraphs of the contract:

A. Provide EMPLOYEE with a lump-sum payment, less applicable taxes, in the amount of the value of his salary and University contribution to benefits for the period between the signing of this AGREEMENT AND RELEASE and April 30, 2012. Included in this lump sum payment shall be the value of unused vacation to the extent provided under University policy.

E. EMPLOYEE remains eligible for benefits under the Tuition Waiver Program for the remainder of the fall semester 2011 and for the spring semester 2012.


I suggested he consult with a lawyer. I think the University has him by the balls, but spending a few hundred with a lawyer may help. They also sent a letter stating it would be turned over to collections, even after they issued him a 1099. Any opinions on this? TIA.

Link Posted: 3/12/2013 7:30:16 PM EDT
[Last Edit: 3/12/2013 7:33:27 PM EDT by wildearp]
Will a lawyer end up costing him more than his post tax settlement, factoring in wife's lost revenue from held up grades?

Sounds like he just needs to let it go and get it off the books and end the stress. I can't believe an accountant can't sort it out with a sob story and negotiated settlement.

I left a job with much more company property than the severance was worth. Un-signed for and unrecoverable assets, free and clear. I turned them in and got my severance. I even turned in a camera later that we had all forgotten about. I didn't have a moment's stress thereafter.

Link Posted: 3/13/2013 5:14:20 PM EDT
[Last Edit: 3/13/2013 5:17:08 PM EDT by ShermiesRule]
1099 has nothing to do with the validity of their claim to recover. It's only their requirement to report their non-payroll payout for people paid over $600. In fact it only bolsters their claim that it was not a payroll severance.
Link Posted: 3/18/2013 9:33:09 AM EDT
Well on a personal level, are you willing to do legal battle with an entity that large and stupid for the rest of your life over 5000 bucks? Not worth it just based on that.
Link Posted: 3/19/2013 8:10:14 AM EDT
[Last Edit: 3/19/2013 8:11:11 AM EDT by sakohntr]
When you receive something you did'nt earn it used to be called stealing. Are you complicit in his theft or are you going to do the right thing?
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