• PAYG withholding – repayment of overpaid amounts

    If you overpay an employee (or other payee), you must decide if the payee is required to repay the overpaid amount.

    If you decide that the employee is not obliged to repay the overpaid amount, you do not need to do anything. If you are a state or Australian government department or agency, legislation may mean your employee must repay the overpaid amount.

    The following instructions explain what to do if you have decided that the employee must repay the overpaid amount:

    • the overpayment is identified in a later financial year than the payment year and the employee repays the amount over time
    • the overpayment is identified in the same financial year as it was paid and the employee repays an amount either within that financial year or within a subsequent financial year.
    Attention

    If the employee is obliged to repay the overpaid amount, fringe benefits tax (FBT) may apply if you:

    • allow the employee time to repay the overpaid amount
    • waive the employee's obligation to repay the overpaid amount.

    Refer to the FBT publications in More information

    End of attention

    Repayment of an overpayment relating to a previous financial year

    Where an overpayment occurs in one financial year and the overpaid amounts are discovered in a later year, you may not recover the amount withheld from the payment from us. If you require the employee to repay the overpaid amount, they will need to repay the gross amount. The gross amount will be the overpaid amount actually received by the payee plus any tax amount withheld.

    The employee will need to repay the gross amount from after-tax income. This is because the employee may have already received a credit in their income tax assessment for the amount that you withheld from the overpayment and paid to us.

    Example 1 – overpayment relating to previous financial year

    An employee is normally paid $50,000 salary per year. However, the employee received $70,000, which is an overpayment of $20,000. An amount of $3,000 was withheld from the overpayment amount resulting in the employee receiving $17,000. The employee is required to repay $20,000 to you from after-tax income.

    The employee may need to amend income tax assessments as a result of the overpayment. For information on what a payee is required to do, refer to Amendment requests

    If two years have elapsed since we issued the payee's notice of assessment, the payee can request an objection to a time limit to amend an assessment.

    End of example

    Reporting the overpaid amount

    At the time when an overpayment has been discovered you should issue an amended payment summary to the employee.

    It should detail the amounts that the employee should have received in the relevant income year. Do not adjust the amount of tax withheld on the amended payment summary.

    If the overpayment occurred in more than one year, you should issue amended payment summaries for each relevant financial year.

    Amending payment summaries

    You cannot change the information on a payment summary after you have either:

    • given it to the payee
    • provided your PAYG withholding payment summary annual report to us.

    If you find a mistake after giving the payment summary to the payee or us, you need to complete a new payment summary, marking the payment summary as an amendment

    When you complete amended payment summaries you must:

    • complete all payee, payment and payer information on each amended payment summary
    • send it to us
    • give a copy to the payee.

    Find out more

    Lodging amended PAYG payment summary annual reports (if you report to us online)

    Amending payment summaries (if you report to us using our paper forms)

    End of find out more

    Repayment of an overpayment identified within the same financial year

    Where an overpayment is identified in the same financial year as it is paid, the employee will only need to repay the net amount of the overpaid amount. The net amount is the amount actually received by the payee.

    Where the overpayment is identified within the same financial year, details of the overpayment should not be included on the employee's PAYG payment summary. The employee should repay the net overpaid amount from after-tax income. The overpaid amount may be repaid in the same financial year or a subsequent financial year.

    Example 2 – repayment in the same financial year

    An employee normally receives wages of $3,200 per month. In October 2014 you found out you incorrectly paid them an amount of $4,200 in September 2014, which is an overpayment of $1,000. An amount of $200 was withheld from the overpayment amount with the employee receiving the remaining $800. If the employee agreed to repay the overpayment by 30 June 2015, the employee is only required to repay $800.

    End of example

     

    Example 3 – repayment in a subsequent financial year

    An employee normally receives wages of $3,200 per month but you incorrectly paid them an amount of $4,200 in the March 2014, which is an overpayment of $1,000. An amount of $200 was withheld from the overpayment amount with the employee receiving the remaining $800. You and the employee agreed that the amount was to be repaid over two instalments, being June 2014 and September 2014. The employee is only required to repay $800. The 2014 and 2015 financial year payment summaries do not reflect the overpaid or repaid amounts.

    End of example
    Attention

    When you provide payees with time to repay an overpaid amount, fringe benefits tax may apply.

    End of attention

    Reporting the overpaid amount

    If the overpayment amount is identified within the same financial year, you will need to ensure that the correct amounts are shown on the PAYG payment summary issued to the employee for the income year (that is, do not include details of the overpayment).

    • If you report your withholding using activity statements and you have paid the amounts to us – revise W1 and W2 labels on any affected activity statements, reduce the
      • W1 amount by the overpaid amount
      • W2 by the amount withheld from the overpaid amount, for each activity statement.
       
    • If you are a large withholder reporting electronically – reduce your next payment by the relevant withholding amount.

    More information

    For more information, refer to:

    • TD 2008/9External Link – Income tax: are amounts mistakenly paid as salary or wages to employees (or as income support payments or worker's compensation amounts to persons), to which they are not beneficially entitled, but are obliged to repay, 'ordinary income' under section 6-5 of the Income Tax Assessment Act 1997?
    • TD 2008/10External Link – Fringe benefits tax: where an employer recognises they mistakenly paid to their employee an amount that the employee is not legally entitled to, but is obliged to repay, and afterwards allows the employee time to repay the amount, is there a 'loan benefit' under subsection 16(1) of the Fringe Benefits Tax Assessment Act 1986?
    • TD 2008/11External Link – Fringe benefits tax: where an employer mistakenly pays to their employee an amount that the employee is not legally entitled to, but is obliged to repay, does the employer's subsequent waiver of that obligation constitute a 'debt waiver benefit' under section 14 of the Fringe Benefits Tax Assessment Act 1986?
    • Fringe benefits tax – a guide for employers (NAT 1054) for information about FBT in general.
      Last modified: 18 May 2016QC 16338