Missed Paycheck Payback

[JSmith15]

I am a Director at a small company where we went through a couple of down years about 3-4 years ago. They ended up not being able to pay me about 50% of my paychecks over a period of time and owe me quite a bit of money now. Luckily, the company is doing better and is now in a position to start paying me back a little bit each month.

They have given me 2 options on how to be paid back. The first option is to pay it back as a promissory note and I would be paid X amount (let's say $2k) each month. My understanding from speaking with them is that with this option I would get the full amount each month ($2k) because no taxes would be deducted when the money is paid to me. The second option would be to add it to my bi-weekly paycheck where taxes, etc would be deducted from the $2k so my take home would be much less than $2k. So the first option obviously gets me paid back quicker since the total amount we have agreed that I am owed is a post-tax amount, but I have no idea how that would impact my yearly taxes.

Any assistance on how the promissory note option would affect my income tax would be appreciated. The 2nd option seems safer tax wise, but will require longer to get the full amount back.

 

[Just Blue]

What State?

I am a Director at a small company where we went through a couple of down years about 3-4 years ago. They ended up not being able to pay me about 50% of my paychecks over a period of time and owe me quite a bit of money now. Luckily, the company is doing better and is now in a position to start paying me back a little bit each month.

They have given me 2 options on how to be paid back. The first option is to pay it back as a promissory note and I would be paid X amount (let's say $2k) each month. My understanding from speaking with them is that with this option I would get the full amount each month ($2k) because no taxes would be deducted when the money is paid to me. The second option would be to add it to my bi-weekly paycheck where taxes, etc would be deducted from the $2k so my take home would be much less than $2k. So the first option obviously gets me paid back quicker since the total amount we have agreed that I am owed is a post-tax amount, but I have no idea how that would impact my yearly taxes.

Any assistance on how the promissory note option would affect my income tax would be appreciated. The 2nd option seems safer tax wise, but will require longer to get the full amount back.

 

[JSmith15]

What State?

Texas

 

[xylene]

I suggest you consult a tax pro in your area, as the exact details matter very much (exact years, etc.)

 

[Zigner]

The company can't pay you wages and simply say they are "post tax" with no taxes being withheld/remitted.

 

[JSmith15]

The company can't pay you wages and simply say they are "post tax" with no taxes being withheld/remitted.

They have evidently spoken to a tax attorney that has told them they can pay the wages back as a promissory note rather than wages. It's unclear to me how they would handle the taxes on their side of things if this is the route that is taken.

 

[PayrollHRGuy]

You are going to owe taxes with both options. If they don't treat it as pay to you, you will be paying self-employment tax on the income.

 

[JSmith15]

You are going to owe taxes with both options. If they don't treat it as pay to you, you will be paying self-employment tax on the income.

Ok, I was thinking that was the case but wasn't sure. So it seems better just to have it treated as normal wages rather than the promissory note.

 

[Zigner]

They have evidently spoken to a tax attorney that has told them they can pay the wages back as a promissory note rather than wages. It's unclear to me how they would handle the taxes on their side of things if this is the route that is taken.

As a "director", you should have been involved in the discussions. If you are an employee, they will need to treat it as wages. If they don't (they should), then you will need to pay the taxes yourself.

 

[LdiJ]

I am a Director at a small company where we went through a couple of down years about 3-4 years ago. They ended up not being able to pay me about 50% of my paychecks over a period of time and owe me quite a bit of money now. Luckily, the company is doing better and is now in a position to start paying me back a little bit each month.

They have given me 2 options on how to be paid back. The first option is to pay it back as a promissory note and I would be paid X amount (let's say $2k) each month. My understanding from speaking with them is that with this option I would get the full amount each month ($2k) because no taxes would be deducted when the money is paid to me. The second option would be to add it to my bi-weekly paycheck where taxes, etc would be deducted from the $2k so my take home would be much less than $2k. So the first option obviously gets me paid back quicker since the total amount we have agreed that I am owed is a post-tax amount, but I have no idea how that would impact my yearly taxes.

Any assistance on how the promissory note option would affect my income tax would be appreciated. The 2nd option seems safer tax wise, but will require longer to get the full amount back.

I am a bit confused. Are these wages that you were never paid, in which case they would need to be pretax dollars or are these wages where they actually issued you a paycheck, withheld the taxes and then you loaned your net pay back to them? If the former, they absolutely need to be included in a paycheck and have taxes withheld, because they are pretax wages not post tax wages. If the latter, then they should not be paid via a paycheck, because they are loan repayments.

If they are neither of the above, then you need to explain what they are and what you mean by "we have agreed that I am owed is a post-tax amount".

 

[Zigner]

I am a bit confused. Are these wages that you were never paid, in which case they would need to be pretax dollars or are these wages where they actually issued you a paycheck, withheld the taxes and then you loaned your net pay back to them? If the former, they absolutely need to be included in a paycheck and have taxes withheld, because they are pretax wages not post tax wages. If the latter, then they should not be paid via a paycheck, because they are loan repayments.

If they are neither of the above, then you need to explain what they are and what you mean by "we have agreed that I am owed is a post-tax amount".

My understanding is the first one: As an example: OP was owed $2,000 gross per week but OP only got $1,000 gross per week. Any amounts the OP gets would need to be paid as wages.

 

[LdiJ]

My understanding is the first one: As an example: OP was owed $2,000 gross per week but OP only got $1,000 gross per week. Any amounts the OP gets would need to be paid as wages.

I only asked because I know of a couple of small companies who did the latter...and because he mentioned post tax dollars. However, if he is just due wages it absolutely has to be part of a regular paycheck with regular withholding.

 

[JSmith15]

I am a bit confused. Are these wages that you were never paid, in which case they would need to be pretax dollars or are these wages where they actually issued you a paycheck, withheld the taxes and then you loaned your net pay back to them? If the former, they absolutely need to be included in a paycheck and have taxes withheld, because they are pretax wages not post tax wages. If the latter, then they should not be paid via a paycheck, because they are loan repayments.

If they are neither of the above, then you need to explain what they are and what you mean by "we have agreed that I am owed is a post-tax amount".

The first one that you mentioned is the correct situation. The post-tax comment was a bit confusing so I apologize. They have given me an amount they owe me and they have given me that number in both pre-tax and post-tax amounts. If they paid back as a note then they would be basing each payment as a deduction from the post-tax amount until it would be paid back and if they were paying me as wages then they would be looking at it from the pre-tax total. There is a chance I could have misunderstood their proposal, but that's the way that I understand it at this point.

It is my understanding that after 2 years, it is very hard to recover lost wages through lawsuits or the labor department. Would that be why a tax attorney would tell them that they could pay it back as a note rather than wages?

 

[LdiJ]

The first one that you mentioned is the correct situation. The post-tax comment was a bit confusing so I apologize. They have given me an amount they owe me and they have given me that number in both pre-tax and post-tax amounts. If they paid back as a note then they would be basing each payment as a deduction from the post-tax amount until it would be paid back and if they were paying me as wages then they would be looking at it from the pre-tax total. There is a chance I could have misunderstood their proposal, but that's the way that I understand it at this point.

It is my understanding that after 2 years, it is very hard to recover lost wages through lawsuits or the labor department. Would that be why a tax attorney would tell them that they could pay it back as a note rather than wages?

A tax attorney would tell them that only if the tax attorney was given a false impression of the situation. It sounds to me like what they are hoping is that you will accept the post tax amount so that they can keep the money that they would normally have had to pay in withholding taxes. That would save them a big chunk of change but do absolutely nothing for you.

 

[JSmith15]

A tax attorney would tell them that only if the tax attorney was given a false impression of the situation. It sounds to me like what they are hoping is that you will accept the post tax amount so that they can keep the money that they would normally have had to pay in withholding taxes. That would save them a big chunk of change but do absolutely nothing for you.

Ok, that's what I was thinking as well regarding the taxes for them. That part seemed pretty shady (i mean the whole thing is shady).