I unknowingly received a salary overpayment at the end of 1998 and I also left the position. All taxes including FICA were taken out of the amount. Now they want the money (over a thousand dollars) back or they threaten a collection agency. I am unemployed and used the money to pay my 1998 income taxes. What can they do? Can they freeze my bank account or what else? Will I have to file an amended tax return for 1998 or how can I get back my overpayment to the IRS?

[This message has been edited by Cay (edited 02-21-2000).]

[This message has been edited by Cay (edited 02-28-2000).]

Cay, in most states, going after a bank account and other assets may require a court order. I am wondering about the tax ramifications - was that overpayment included in your W-2 for 1999? Was FICA, federal tax and state tax withheld? If so,that may compound the situation somewhat. I suggest you consult with an attorney to determine your legal rights.

David thanks for answering my message. I have edited it and have given more info. If any one else has any advice please write. I would like to avoid going to an attorney if possible.

First, it sounds as if you agree that you were overpaid and the amount of the overpayment. Perhaps you can work out some negotiated repayment with your former employer. If so, figure out what you can pay and over what period, and then make them an offer, perhaps agreeing to pay the net (after tax withholding) amount.

Since you are unemployed, that might not be viable for you, but it would not hurt to make that offer, with the caveat that you cannot pay anything until you find suitable unemployment. Probably better than the cost of an attorney.

The tax treatment of your repayment can get pretty complicated. Your old employer will refund your portion of FICA taxes withheld from the original payment as you make repayments.

You can recoup the income taxes you paid on the original payment one of two ways. First, you can deduct the overpaid amount in the year of repayment. If you don't have much income in the repayment year because you are unemployed, this deduction may not have much value. (If the overpaid amount doesn't exceed $3,000 then I think your only option is take the deduction. The second option discussed next is not available). The other alternative is to reduce your tax in the year of repayment by the extra tax you paid in the year you originally received the repayment. You need to figure out which approach is better in your particular circumstances.