March 16, 2021

P.S. Docket No. DCA 19-392

In the Matter of the Debt Collection Act Petition

ROY S. REID v UNITED STATES POSTAL SERVICE

APPEARANCE FOR PETITIONER
Roy S. Reid

APPEARANCE FOR RESPONDENT
Ward Hughes
Labor Relations Specialist

FINAL DECISION UNDER THE DEBT COLLECTION ACT OF 1982

The United States Postal Service seeks to collect $1,196.85 for a salary overpayment and $586.30 for a related debt for federal income taxes from Petitioner Roy Reid. As discussed below, the Petition is denied. The Postal Service may collect $1,783.15—the combined value of those two debts—by involuntary administrative salary offset.

FINDINGS OF FACT

1. Mr. Reid is employed as a maintenance mechanic with the Postal Service at the Indianapolis, Indiana Mail Processing Annex (Resp. Exh. 5).
2. On May 7, 2019, Mr. Reid reported to the National Center for Employee Development (NCED) in Norman, Oklahoma to attend three weeks of Illuminating Engineering Society (IES) classes. On May 14, 2019, the NCED contacted Mr. Reid’s supervisor and reported that he had informed an instructor that he was resigning from the Postal Service and had left the classroom. When Mr. Reid failed to return to the class the next day, he was withdrawn from the class. (Pet. Exhs. 5, 11c).
3. When Mr. Reid reported to work on May 14, 2019, after driving home from Oklahoma, he was not allowed to clock in based on his supervisor’s understanding that he had verbally resigned that morning (Resp. Exh. 3).
4. The next day, Mr. Reid was separated from the Postal Service. As part of his terminal leave payment, Mr. Reid was paid $1,196.85 for his accrued annual leave balance of 98.72 hours. (Resp. Exhs. 9, 11; Pet. Exh. 21).
5. Mr. Reid later filed a grievance contesting his removal, asserting that he did not resign and that the Postal Service improperly removed him (Resp. Exh. 3). In September 2019, the grievance was resolved at step three. The parties agreed that (1) Mr. Reid “did not voluntarily resign and the resignation effective 5/15/19 will be rescinded” and (2) Mr. Reid would be reinstated with back pay. Additionally, Mr. Reid agreed to “pay the cost of the IES course that he failed to complete in May 2019.” (Resp. Exh. 3).
6. In October 2019, the Postal Service issued an invoice for $1,196.85 for repayment of the 98.72 hours of terminal leave Mr. Reid received. The Postal Service also notified Mr. Reid that once the invoice was paid, his annual leave hours would be returned (Resp. Exh. 16, p. 4).
7. Mr. Reid did not, however, pay the invoice. The Postal Service therefore issued a Notice of Involuntary Administrative Salary Offsets Under the Debt Collection Act regarding the annual leave debt on December 3, 2019 (Resp. Exh. 2).
8. As contemplated by the grievance settlement, on December 5, 2019, the Postal Service issued a letter of demand for $3,580.46 for the purported cost of the remainder of the IES class (Petitioner Documents, filed February 26, 2020, p. 1).
9. On December 20, 2019, Mr. Reid filed this Petition from the December 3, 2019 Notice challenging the $1,196.85 debt. In his Petition, Mr. Reid did not dispute that he owed the debt, but he claimed that he was entitled to certain offsets for travel and requested that the debt be adjusted accordingly. The Petition did not reference the second letter of demand for $3,580.46 (Petition).
10. On January 22, 2020, the Postal Service issued another invoice for $586.30 for the taxes on the unpaid terminal leave invoice (Decl. C. Brown; Resp. Exh. 18). ¹

DECISION

At the start of this proceeding, both parties mistakenly believed that the December 3, 2018 Notice concerned the costs associated with the NCED class. They later agreed, however, that the Notice concerned the terminal leave debt. Although both parties have argued about the NCED costs, in reality, the only issue in this case is the terminal leave payment and the related tax debt. The $3,580.46 associated with the NCED class is not before me, and I make no ruling regarding it.
The paid terminal leave equates to a salary overpayment now that Mr. Reid has been reinstated. To recover a salary overpayment, the Postal Service bears the burden to prove by a preponderance of the evidence that the overpayments were made, the amount of the overpayments, and that the employee was not entitled to the overpayments. See Jordan v. United States Postal Service, AO 19-66, 2019 WL 4233901 (I.D. August 22, 2019, aff’d, September 30, 2019). Here, the Postal Service has met that burden. As soon as Mr. Reid was reinstated, he was no longer legally permitted to keep the terminal leave payment he had received. See Employee Labor Relations Manual (ELM) § 512.734; ELM § 519.2; accord 5 U.S.C. § 6306. He will, however, be entitled to have those hours reinstated once he repays the debt created by the overpayment. Id. Mr. Reid provided no defense that would alleviate him of the debt or allow him to keep both the leave and the terminal leave payment. Therefore, he is liable for the $1,196.85 debt.
Mr. Reid argues that he should not be liable for the related tax debt of $586.30 because the Postal Service does not “have the power to tax and spend.” It is well settled that an employee who fails to repay a salary overpayment by the end of a calendar year incurs an additional debt to the Postal Service. See, e.g., Salzano v. United States Postal Service, DCA 17-228, 2019 WL 479670 (January 7, 2019); Aaron Thorne, DCA 12-319, 2013 WL 12303256 (April 16, 2013). When an agency makes a salary overpayment, it withholds taxes on the total salary payment (referred to as the “gross payment”) and then pays the employee the remainder (referred to as the “net payment”). The Postal Service takes the money it has withheld for taxes and sends it to the respective federal and state authorities responsible for collecting taxes. If the employee repays the net payment before the end of the calendar year, the agency simply asks the taxing authorities to make a corresponding adjustment to the employee’s tax records, and the employee is cleared from any further liability for the overpayment.
If, however, an employee fails to repay a debt by the end of a calendar year, the agency is no longer able to recoup the taxes it forwarded to the taxing authorities. Eudy v. United States Postal Service, DCA 16-225, 2017 WL 5516572 (August 9, 2017). After the first of the year, the unrepaid overpayment is treated as income by the taxing authorities, and the taxes paid by the agency on behalf of the employee are credited as taxes paid by the employee. At that point, it is simply too late for the agency to get the taxes back that were paid to the taxing authorities on behalf of the employee. The employee, of course, was never entitled to either the net salary overpayment or the credit received on his behalf from the taxing authority. The employee thus incurs a debt to the agency for both the net amount of the salary overpayment and the taxes forwarded to the taxing authorities on the employee’s behalf, equating to the gross overpayment. Postal Bulletin 22480 (November 9, 2017). The Postal Service is therefore entitled to reimbursement for the taxes paid on the salary overpayment.

ORDER

The Petition is denied. The Postal Service may collect (1) $1,196.85 for terminal leave and (2) $586.30 for the taxes by involuntary administrative salary offset.

Diane M. Mego
Administrative Judge