Two years ago I received a raise. I was just informed that by my current employer that they had made a mistake when they put my raise in and they have been paying more then what they had intended too. Now they want me to pay this amount back. I didn't make the mistake and I didn't know they had made a mistake. My check increased at the time of the raise and thats about all I noticed. I didn't think to calculate the change to see if they had done it right. Now after all this time they want me to sign an agreement to pay it back over a 3 yr period. Am I obligated to pay this back? The total is around 7,000.00 that was over paid. IF I agree to pay it back which I really don't want too do as this wasn't my fault and I have become accustomed to this standard of living and I was not intentionally taking more money from them. I thought that this was what my pay increase was and didn't question it.

If I have to pay this back. Will this payment be pretax? What will this to do my Taxes filed the last two yrs.

Personally, having managed large payroll operations for many years, I would be embarassed to ask an employee to pay back an overpayment that continued as long as this one has. Having said that, though, there is no law I know of that prohibits the employer from requiring it.

The tax situation gets pretty complicated when you are repaying overpayments that occurred in prior years. Generally speaking, you pay back the gross overpayment (less FICA/Medicare taxes), get W-2Cs and have to amend returns. Further complicating matters is allocating the repayments you make in 2007, for example, for the year the overpayment occurred. Then, the payments in 2008, allocating them, etc.

An alternative method is just to reduce your gross pay (that would be, in effect, "pre-tax") over a number of pay periods until the gross overpayment is recovered.

Has the company said what will occur if you don't agree to this voluntarily?