taxes on overpayment by former employer

[jbm3]

My previous employer issued me a hazard pay amount in June 2020 of around $500 from which they deducted taxes(net amount came out to be around $414). I alerted them to this last month and asked about paying them back. They have asked me to pay them the pre-tax amount and that I will have to request a corrected  W-2 next year. Can I not pay them the net amount they gave me and them correct the tax withholdings prior to next year? 

[rjs]

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@jbm3 wrote:

Can I not pay them the net amount they gave me and them correct the tax withholdings prior to next year? 

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Yes, that is what is supposed to be done if you repaid the incorrect payment in the same year that you received it. The adjustments should be made before your W-2 for 2020 is issued, so that the original W-2 is correct and there is no need for a corrected W-2. The incorrect payment should not be included in your W-2 at all. Your 2020 W-2 should be the same as if they never paid you the incorrect amount in the first place.

Unfortunately I can't find any information from the IRS that clearly states how this situation should be handled. Maybe you can get the employer to consult their payroll provider or tax accountant about how to handle it.

(A corrected W-2 is needed when you pay back wages that you received in an earlier year, such as if you received the incorrect payment in 2019 and paid it back in 2020. Maybe they are confused and are looking at the instructions for that situation.)

[jbm3]

Thank you!