TAX-RELATED OVERPAYMENTS MAY BE WAIVED

Here is a new one that surprises even us. A federal agency, ironically the IRS, failed to withhold from the biweekly salary checks of its employees in Florence, KY the full income tax amount they were obligated to pay to the City of Florence. When IRS found out, it announced that the employees had received too much take home pay, which the feds call and overpayment, and that management was going to increase their city tax deductions over the amount typically due each pay period to make up for the amount it failed to withhold. Employees were upset and their union stepped in.

NTEU filed a grievance and took the matter to arbitration arguing that management had not only failed to comply with its contract provisions obligating it to waive any employee debts such as this, but also the law (See 5 USC 5584). The agreement provisions required the agency to waive overpayment when it resulted from the agency’s administrative error. The arbitrator agreed with NTEU and ordered the agency to reimburse employees the extra local city tax money it withheld from their checks.

The agency filed exceptions with FLRA claiming that because the money was owed to the city, not to the agency itself, the waiver of overpayment law and contract provisions did not apply. The Authority disagreed (See NTEU and IRS, 66 FLRA 888 (2010)), and dismissed the idea that the waiver provisions cannot be used when debts are owed to non-governmental or third parties.

This case reveals yet another service a union can provide its members and reason why employees should join and support their unions.