QU for the Lawyers - Employee Contract

[koonja]

Hi guys, I worked for Verizon for 1.75 years and left voluntarily. Because of that, I have to repay 50% of what my relocation package was, which I'm not arguing. However, I'm wondering if I have to repay the taxes on that? They are asking me to repay half of what I received plus half of the taxes Verizon paid for me to receive that. So basically, if my relocation was $100, and Verizon had to pay $150 to get me that $100, do I have to only pay back $50? Or do I have to pay back $75? I get why they want half of everything, but based on the verbage, that was never made clear to me.

Here is the letter of the law:

"In accordance with my acceptance of a position with Verizon Communications, I am eligible to receive certain provisions related to relocations (“Relocation Provisions”) pursuant to the Company’s Employee Relocation Policy.

In order to receive the Relocation Provisions, I agree to and understand the following:

1) If I voluntarily terminate my employment with Verizon (either by voluntary resignation or abandonment of my position) within one year of the effective date of my new position, I will repay Verizon 100% of the Relocation Provisions included in the particular option benefit package provided to me. I must commit to my new department/function/location for one year prior to transferring to another department/function/location, unless Verizon approves an earlier transfer because of business need.

2) If I voluntarily terminate my employment between twelve months and two years of the effective date of my new position with Verizon, I will repay to Verizon 50% of the Relocation Provisions included in the particular option benefit package provided to me."

 

[wizards8507]

Hi guys, I worked for Verizon for 1.75 years and left voluntarily. Because of that, I have to repay 50% of what my relocation package was, which I'm not arguing. However, I'm wondering if I have to repay the taxes on that? They are asking me to repay half of what I received plus half of the taxes Verizon paid for me to receive that. So basically, if my relocation was $100, and Verizon had to pay $150 to get me that $100, do I have to only pay back $50? Or do I have to pay back $75? I get why they want half of everything, but based on the verbage, that was never made clear to me.

Here is the letter of the law:

"In accordance with my acceptance of a position with Verizon Communications, I am eligible to receive certain provisions related to relocations (“Relocation Provisions”) pursuant to the Company’s Employee Relocation Policy.

In order to receive the Relocation Provisions, I agree to and understand the following:

1) If I voluntarily terminate my employment with Verizon (either by voluntary resignation or abandonment of my position) within one year of the effective date of my new position, I will repay Verizon 100% of the Relocation Provisions included in the particular option benefit package provided to me. I must commit to my new department/function/location for one year prior to transferring to another department/function/location, unless Verizon approves an earlier transfer because of business need.

2) If I voluntarily terminate my employment between twelve months and two years of the effective date of my new position with Verizon, I will repay to Verizon 50% of the Relocation Provisions included in the particular option benefit package provided to me."

This is a tax issue more than a legal issue. You want us CPAs, not the lawyers.

It sounds like your original relocation benefits were tax-protected. In other words, Verizon paid the government the taxes that you would have had to pay because the relocation benefits themselves would have otherwise been taxable income. To use your example, it is NOT the case that Verizon had to pay $150 to get you $100. Rather, Verizon paid $100 to get you $100 and then you should have had to pay the federal government $50 of that in income taxes, but Verizon paid it on your behalf. The tax protected treatment is itself a Relocation Provision subject to the 50% payback.

You're not paying Verizon back for taxes that Verizon had to pay. You're paying Verizon back for taxes that Koon had to pay but Verizon paid for you.

 

[koonja]

This is a tax issue more than a legal issue. You want us CPAs, not the lawyers.

It sounds like your original relocation benefits were tax-protected. In other words, Verizon paid the government the taxes that you would have had to pay because the relocation benefits themselves would have otherwise been taxable income. To use your example, it is NOT the case that Verizon had to pay $150 to get you $100. Rather, Verizon paid $100 to get you $100 and then you should have had to pay the federal government $50 of that in income taxes, but Verizon paid it on your behalf. The tax protected treatment is itself a Relocation Provision subject to the 50% payback.

You're not paying Verizon back for taxes that Verizon had to pay. You're paying Verizon back for taxes that Koon had to pay but Verizon paid for you.

Ok, that makes sense and is pretty much how I envisioned it. So I have to pay the taxes as well? I sent you a PM.

 

[wizards8507]

Ok, that makes sense and is pretty much how I envisioned it. So I have to pay the taxes as well? I sent you a PM.

You have to pay them to Verizon today, yes. But you should get them back when you file your 2015 tax return since this whole thing is "negative income."

 

[koonja]

Yeah, I was hoping I could get out of paying the relocation + the taxes since VZ worded it very lazily and didn't specify. That's why I wanted the attorney's input. I get that it's fair and why I owe it, but it was never made clear or mentioned the tax on top of it that I would be responsible for. It just says " will repay Verizon 100% of the Relocation Provisions included in the particular option benefit package provided to me".

 

[wizards8507]

Yeah, I was hoping I could get out of paying the relocation + the taxes since VZ worded it very lazily and didn't specify. That's why I wanted the attorney's input. I get that it's fair and why I owe it, but it was never made clear or mentioned the tax on top of it that I would be responsible for. It just says " will repay Verizon 100% of the Relocation Provisions included in the particular option benefit package provided to me".

Yes. Tax allowance IS a relocation provision.

Also there's nothing gained by trying to "get out of it," even if you could. Any money you'd get out of paying would be reduced from your tax refund.

 

[koonja]

Ok. Well hopefully they take vbucks.

 

[Ndaccountant]

You have to pay them to Verizon today, yes. But you should get them back when you file your 2015 tax return since this whole thing is "negative income."

Not a tax guy, but that seems strange to me. In the eyes of the government, they were owed $100, regardless of whether it was Verizon paying it or Koon. If Verizon elected to pay it on his behalf and now gets $50 of that back, Koon shouldn't be able to deduct that $50 from his 2015 taxable income since that would essentially mean the government fails to maintain the $100 collected on the original transaction.

 

[wizards8507]

Not a tax guy, but that seems strange to me. In the eyes of the government, they were owed $100, regardless of whether it was Verizon paying it or Koon. If Verizon elected to pay it on his behalf and now gets $50 of that back, Koon shouldn't be able to deduct that $50 from his 2015 taxable income since that would essentially mean the government fails to maintain the $100 collected on the original transaction.

Let's use more realistic numbers because the $100/$50 thing is confusing me.

$10,000 bonus, tax protected at a 20% marginal rate. $10,000 goes to the employee, $2,000 goes to the government, all $12,000 paid by employer.

Employee quits, has to return 50%. The total value of his benefit was $12,000, so he has to return $6,000. That ($6,000) is deducted from the employee's current-year earnings at his marginal rate of 20% for a net tax benefit of $1,000. Employee's net cash flow is ($5,000), or 50% of the cash flow he received in the first place.

From a taxation perspective, the government isn't losing out on the revenue from the original $12,000, because the $12,000 was, in essence, an error. The net effect of a $12,000 bonus that you have to return half of is as if you had just been given a $6,000 bonus in the first place.

https://ttlc.intuit.com/questions/2600258-repayment-of-relocation-package-effect-on-taxes

 

[Ndaccountant]

Let's use more realistic numbers because the $100/$50 thing is confusing me.

$10,000 bonus, tax protected at a 20% marginal rate. $10,000 goes to the employee, $2,000 goes to the government, all $12,000 paid by employer.

Employee quits, has to return 50%. The total value of his benefit was $12,000, so he has to return $6,000. That ($6,000) is deducted from the employee's current-year earnings at his marginal rate of 20% for a net tax benefit of $1,000. Employee's net cash flow is ($5,000), or 50% of the cash flow he received in the first place.

From a taxation perspective, the government isn't losing out on the revenue from the original $12,000, because the $12,000 was, in essence, an error. The net effect of a $12,000 bonus that you have to return half of is as if you had just been given a $6,000 bonus in the first place.

https://ttlc.intuit.com/questions/2600258-repayment-of-relocation-package-effect-on-taxes

Taken from the relocation company that I used when I moved. I am a corporate guy, not a tax guy, but I know enough to know that I would personally use a tax specialist on this. Essentially, the types of expenses paid on his behalf are important, as are the dollar amounts. If nothing else at all Koon, I hope you kept receipts or at least the company did.

Consequences of Repayment
In Rev. Rul. 79-311 IRS holds that an employee who erroneously receives wages and repays them in a subsequent year is entitled to an itemized deduction as an employee business expense. However, wages repaid in the same year as receipt are not deductible. Rather, they are simply not includible as income in the first place. The ruling goes on to hold that in neither case is the erroneous payment treated as "wages" for FICA and Medicare purposes, and both employer and employee are entitled to adjust employment taxes accordingly.

In the case of repayment in the year of receipt, the company simply credits the employee with the excess withholding and FICA, and adjusts wages on its form 941 for that year. In the case of repayment in a subsequent year, the company must refund to the employee the FICA collected (but not the withheld income tax), obtain a written statement from the employee that the employee will not independently seek a refund, and then claim credit (without interest) for the repayment of FICA on a subsequent form 941.

Rev. Rul. 79-311 has been applied to repayment of moving expenses by the IRS in Private Letter Rulings 9050053 and 9313015.

The tax result for an employee repaying in a year subsequent to receipt may be unfortunate. Under section 67(a), itemized deductions for employee business expenses may be taken only to the extent they exceed 2 percent of adjusted gross income (AGI). As a result, an employee with AGI of $100,000 will lose the first $2,000 of the deduction for repayment.

It is not clear, however, that IRS’s position is correct. An alternative is to claim an adjustment under section 1341.

Section 1341 provides that when a taxpayer restores a substantial amount (defined as exceeding $3,000) received under a claim of right, the taxpayer can either claim the allowable deduction in the year of restoration, or recompute the tax for the year in which the amount was received and claim a deduction in the current year for the amount the taxes would have been reduced in that prior year, whichever is most beneficial. The section 1341 adjustment is not subject to the 2 percent floor. There currently is a split of authority as to whether section 1341 would apply to a repayment by an employee of excess or erroneous wages.

In Rev. Rul. 67-48 IRS argued that section 1341 applies only to cases in which the taxpayer never had an actual right to the income, but only an apparent right. That is, the condition requiring restoration was already in existence when the money was received, but unknown to the recipient. IRS contended that section 1341 does not apply when the obligation requiring restoration arises subsequent to receipt of the money. However, this distinction has been rejected by two circuit courts of appeal. Moreover, IRS itself has failed on occasion to apply its own rule (although it has never expressly repudiated it) (See Rev. Rul. 78-25 and Rev. Rul. 72-78). Consequently, a taxpayer repaying moving expenses under a payback agreement would have a reasonable argument for claiming the adjustment under section 1341, rather than as a miscellaneous employee business expense.

A further complication is not discussed in any IRS rulings on this subject, which assume that the entire amount of the repayment is deductible. However, it is not clear whether amounts not originally included in the employee’s income would qualify for deduction.

The amounts repayable usually will consist in part of expenses that were excluded from the employee’s income. This may occur because the expenses were for shipping of household goods or travel at the time of the final move and were specifically excludable under section 132(a) (6). Or, the expenses may include costs incurred by the employer to dispose of the employee’s home under a qualified home sale program.

Generally, the tax law does not permit a deduction for restored amounts when the taxpayer did not pay taxes on the original receipt. See United States v. Skelly Oil Co., 394 U.S. 678 (1969); O’Meara v. Commissioner, 8 T.C. 622 (1947). The deduction for repayment, whether claimed under section 1341 or as an employee business expense, operates to offset the tax detriment caused by including the amount in income--not to create a separate tax benefit for a deduction not offset by any income. Consequently, at least as to the home sale expenses, it is fairly clear that the employee should not get a deduction for the repayment. With respect to the household goods and travel expenses, however, the answer is less clear, because the employee would have been entitled to a moving expense deduction if the employee had incurred the expenses directly. Arguably, when the employee repays the employer, the employee simply has paid his or her own moving expenses, and should get a deduction if the requirements of section 217 are met.

As noted, the only IRS authorities on point do not differentiate between types of expenses, and both PLR 9050053 and PLR 9313015 treat the entire repayment as deductible (Note that neither ruling seems to involve a home purchase program. Although they do include payments for home sale expenses, these seem to have been taxable direct reimbursements. Note also that private letter rulings, while useful in analyzing the IRS approach to the issues they discuss, may be relied on only by the taxpayer to whom issued.).

As a result of all these uncertainties, it is not advisable for companies to provide any guidance to employees on repayment. Employees should generally be advised to consult their own tax advisors

 

[koonja]

I'm about 50/50 on understanding all of this. I might tell them I'm disputing the amount based on the fact that I was almost there for 2 years, and that it was never expressed in the agreement that I would be responsible for an amount greater than what I received. I am guessing they will say 'doesn't matter', but perhaps they will settle for less. What do I have to lose?

 

[wizards8507]

Taken from the relocation company that I used when I moved. I am a corporate guy, not a tax guy, but I know enough to know that I would personally use a tax specialist on this. Essentially, the types of expenses paid on his behalf are important, as are the dollar amounts. If nothing else at all Koon, I hope you kept receipts or at least the company did.

Your bolded is irrelevant. Koon DID pay taxes on the original receipt, he just didn't know it. He thought he got $X tax free, but he really got $X / (1+r) subject to all applicable taxes, where r is his marginal tax rate, thus netting him $X.

Example: Koon thinks he got $10,000 tax free. He really got $12,500 subject to 20% tax, so he netted $10,000. If he dissected his 2013 W2 I'm one thousand percent positive that's what he'd see.

*This answer does not constitute legal, accounting, or other professional advice.

I'm about 50/50 on understanding all of this. I might tell them I'm disputing the amount based on the fact that I was almost there for 2 years, and that it was never expressed in the agreement that I would be responsible for an amount greater than what I received. I am guessing they will say 'doesn't matter', but perhaps they will settle for less.

You DID receive it, that's the thing. Let's say this was a normal salary. And your salary is $70,000. And you have an obligation to pay back one year's salary if you quit. You don't get to say "well I'm only paying you back $50,000 because I had all these taxes taken out of my pay. It doesn't work that way. Verizon is owed what Verizon shelled out, not what Koon netted after the government took its taste.

What do I have to lose?

Probably nothing, but there's nothing to gain, either. You'll get the difference back with your taxes.

 

[woolybug25]

The better question for Koon is... Why did you leave a job 3 months early when you signed a repayment agreement?


Wiz is dead on, btw. I would add, but he has hit on everything already.

 

[Ndaccountant]

Your bolded is irrelevant. Koon DID pay taxes on the original receipt, he just didn't know it. He thought he got $X tax free, but he really got $X / (1+r) subject to all applicable taxes, where r is his marginal tax rate, thus netting him $X.

Example: Koon thinks he got $10,000 tax free. He really got $12,500 subject to 20% tax, so he netted $10,000. If he dissected his 2013 W2 I'm one thousand percent positive that's what he'd see.

*This answer does not constitute legal, accounting, or other professional advice.

I don't have enough of the details here one way or another. Simply put, I would get some tax professional advice on this, not a turbo tax or H&R block thing either. A real tax individual. I know that for my relo, I had some tax complications that, thankfully, the company paid a firm to sure up. It isn't something he should handle on his own.

 

[dublinirish]

The better question for Koon is... Why did you leave a job 3 months early when you signed a repayment agreement?


Wiz is dead on, btw. I would add, but he has hit on everything already.

Columbus. OSU is National Champs. OSU fans. Koon leaves town.

makes sense to me

 

[koonja]

OSU sucks. I knew I was leaving the job for a few months, but stayed 2 months longer than I wanted to because I was in the middle of my MBA course, and if I left, they wouldn't pay for it. Left for a better job. The relocation sucks, but I had waited long enough. I'm OK paying it. Just don't want to pay more than I have to.

 

[dublinirish]

how you finding MSP anyhow? Great city

 

[koonja]

how you finding MSP anyhow? Great city

Been boring so far - busy with work and living with Grandparents until Monday. On Monday I move into my new home in Uptown with 3 roommates, so should be a fun time!

 

[dublinirish]

Been boring so far - busy with work and living with Grandparents until Monday. On Monday I move into my new home in Uptown with 3 roommates, so should be a fun time!

I spent a day walking around the city on my own back in 2009 while my friend who was hosting me was at work. Jimmy John's had wifi and they got dinosaur skeletons in their science museum.

Night time was more fun went to see Trampled by Turtles play at First Avenue one night and then a T-Wolves game the next followed by some decent Guinness in an irish bar down town.

 

[koonja]

I spent a day walking around the city on my own back in 2009 while my friend who was hosting me was at work. Jimmy John's had wifi and they got dinosaur skeletons in their science museum.

Night time was more fun went to see Trampled by Turtles play at First Avenue one night and then a T-Wolves game the next followed by some decent Guinness in an irish bar down town.

My first big MSP outing will be the Harry Potter 'night that shall not be remembered' pub crawl on Sept 26th in Minneapolis. Over 4K people going.

 

[woolybug25]

OSU sucks. I knew I was leaving the job for a few months, but stayed 2 months longer than I wanted to because I was in the middle of my MBA course, and if I left, they wouldn't pay for it. Left for a better job. The relocation sucks, but I had waited long enough. I'm OK paying it. Just don't want to pay more than I have to.

No offense... (cuz that's what you're supposed to say before saying something really mean)

But you sound like a $hitty employee. First, you agree to a contract of employment and are trying to find a way to get around paying for what you agreed upon. But also screwed them into paying for educational costs that they would never reap benefit from. That's a crappy thing to do, sorry if you don't see it that way, but that kind of behavior is what is wrong with today's workforce.

Somebody gives you opportunity and money to improve yourself through outside education, only to get shat on because you don't like the town. It was that bad that you couldn't wait three months? You should have seen that as a risk from the beginning and kept that in mind before agreeing to the position.

People want to cry about how companies treat them and meanwhile pull $hit like this.

 

[koonja]

No offense... (cuz that's what you're supposed to say before saying something really mean)

But you sound like a $hitty employee. First, you agree to a contract of employment and are trying to find a way to get around paying for what you agreed upon. But also screwed them into paying for educational costs that they would never reap benefit from. That's a crappy thing to do, sorry if you don't see it that way, but that kind of behavior is what is wrong with today's workforce.

Somebody gives you opportunity and money to improve yourself through outside education, only to get shat on because you don't like the town. It was that bad that you couldn't wait three months? You should have seen that as a risk from the beginning and kept that in mind before agreeing to the position.

People want to cry about how companies treat them and meanwhile pull $hit like this.

They're a big company, they'll survive. And it's not my fault their policy is written poorly where you can have them pay for school and leave the next day without having to pay them a dollar back. If they don't like it, they will hopefully learn from this (although I'm sure thousands of VZ employees have done this, so I'm guessing they do not care).

And I didn't let the fact that I was leaving affect my work. They wanted me there all of the way to the end for a reason.

 

[IrishLax]

No offense... (cuz that's what you're supposed to say before saying something really mean)

But you sound like a $hitty employee. First, you agree to a contract of employment and are trying to find a way to get around paying for what you agreed upon. But also screwed them into paying for educational costs that they would never reap benefit from. That's a crappy thing to do, sorry if you don't see it that way, but that kind of behavior is what is wrong with today's workforce.

Somebody gives you opportunity and money to improve yourself through outside education, only to get shat on because you don't like the town. It was that bad that you couldn't wait three months? You should have seen that as a risk from the beginning and kept that in mind before agreeing to the position.

People want to cry about how companies treat them and meanwhile pull $hit like this.

This was my thought reading this thread. Woof.

 

[koonja]

Also, it was never a contract. I was 'at-will'. Either of us could leave at any time without a reason.

And not trying to get around what I 'agreed upon'. I did not know I owed taxes on top of what I was given because it did not say that. I get why it is that way, but I did not realize that reading it.

You guys can spend your time trying to make me feel bad, it's not going to work, lol.

 

[woolybug25]

They're a big company, they'll survive. And it's not my fault their policy is written poorly where you can have them pay for school and leave the next day without having to pay them a dollar back. If they don't like it, they will hopefully learn from this (although I'm sure thousands of VZ employees have done this, so I'm guessing they do not care).

And I didn't let the fact that I was leaving affect my work. They wanted me there all of the way to the end for a reason.

It's not your fault that you took advantage of them? Do you hear yourself? If a chick seduced you so she could steal all of your stuff, would it not be her fault because you left yourself open for it?

Give me a break. Furthermore, just because its a big company, doesn't mean that it doesn't effect people. Somebody hired you, somebody trained you and somebody relied on you. Those people were effected. But regardless, you don't do it because it's the wrong thing to do. Just because you can, doesn't mean its okay. Total character flaw, imo.

Also, it was never a contract. I was 'at-will'. Either of us could leave at any time without a reason.

And not trying to get around what I 'agreed upon'. I did not know I owed taxes on top of what I was given because it did not say that. I get why it is that way, but I did not realize that reading it.

Not reading your contract correctly doesn't give you the right to screw them over. wtf?

You guys can spend your time trying to make me feel bad, it's not going to work, lol.

Clearly...

 

[koonja]

The last thing my director said to me was that he was glad they hired me and he'd do it over again in a heart beat, and to let him know if I ever need anything. I couldn't have left Verizon on better terms.

I gave them ample notice and trained employees on my projects for the smooth transition. This is a waste of breath, lol. Nobody felt like they got one over. Literally no regret at all on either side.

 

[woolybug25]

The last thing my director said to me was that he was glad they hired me and he'd do it over again in a heart beat, and to let him know if I ever need anything. I couldn't have left Verizon on better terms.

I gave them ample notice and trained employees on my projects for the smooth transition. This is a waste of breath, lol. Nobody felt like they got one over. Literally no regret at all on either side.

Tell yourself whatever you need to make yourself feel better.

Let me ask, did they know that you purposely stayed two months so they had to pay for your education? Even though you new full well that you were leaving as soon as they did?

 

[Emcee77]

Yeah, it sucks, but we had a similar issue when my wife got a new job opportunity that she couldn't turn down and had to pay back a portion of a bonus she had received from her old employer. IIRC, it all happened (meaning the bonus and job change) in the same year, so there weren't really any tax problems for us; our paying back the money just reduced the figure ultimately reflected on her W-2 for that year. But it sucked having to come up with the portion of the bonus that we hadn't actually received (i.e. the portion that had been paid directly to the government). Although I can't blame my wife's former employer for that; all they wanted was for us to repay what they had paid out, which was fair enough.

 

[wizards8507]

No offense... (cuz that's what you're supposed to say before saying something really mean)

But you sound like a $hitty employee. First, you agree to a contract of employment and are trying to find a way to get around paying for what you agreed upon. But also screwed them into paying for educational costs that they would never reap benefit from. That's a crappy thing to do, sorry if you don't see it that way, but that kind of behavior is what is wrong with today's workforce.

Somebody gives you opportunity and money to improve yourself through outside education, only to get shat on because you don't like the town. It was that bad that you couldn't wait three months? You should have seen that as a risk from the beginning and kept that in mind before agreeing to the position.

People want to cry about how companies treat them and meanwhile pull $hit like this.

It's also a dumbass policy on Verizon's part. My employer (whomever that might be) has the same provisions on tuition reimbursement as they have on relocation and signing bonuses. Leave within a year, you pay back the whole thing.

 

[koonja]

Tell yourself whatever you need to make yourself feel better.

Let me ask, did they know that you purposely stayed two months so they had to pay for your education? Even though you new full well that you were leaving as soon as they did?

I don't have to tell myself anything; I'm completely comfortable with my decision and would do it again.

No, they didnt. But they would likely have kept me on anyways because I have too much integrity to let the fact that I was leaving affect my work, and I was solely responsible for a few processes, one with over 100 million dollar annual impact, that I had to train a group of people on.