When a Postal Service™ employee is overpaid, USPS® establishes an account receivable for the overpayment and initiates the collection of the debt from the employee through the process described in either ELM 450, Collection of Postal Debts from Nonbargaining Unit Employees, or ELM 460, Collection of Postal Debts from Bargaining Unit Employees. Initially, the USPS bills the employee for the net value of the overpayment; consequently, federal, state, and FICA/Medicare taxes are not part of the initial bill.
However, IRS regulations require that, if an employee has not fully repaid the overpayment by the end of the tax year (December 31) in which the overpayment was made, the employer must report the unreturned value of the overpayment as taxable income on the employee’s W-2. Additionally, the employee and employer must pay appropriate federal, state, and FICA/Medicare taxes on the remaining value of the debt.
To comply with this IRS regulation, USPS establishes an additional account receivable at the close of the tax year for the value of the taxes the employee owes related to the unpaid debt. The debt collection processes in ELM 450 and ELM 460 are used to collect the additional tax-related debt.
— Payroll,
Controller, 11-14-13
