Aug 16, 2025
Rachel, from Nashville, Tennessee, recently called into The Ramsey Show for advice about a payroll error that resulted in her being paid $48,000 instead of approximately $5,700 — an overpayment of $42,300.
“I told [my employer] before it hit my account. But they took so long to correct the error and get me my letter of debt repayment that we are now 10 months in the future,” said Rachel.
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Unfortunately, the delay has pushed this problem across a tax year, causing issues for Rachel. She only has a portion of the approximately $42,000 overpayment because around $19,000 was withheld from her paycheck for tax purposes.
At this point, Rachel’s company wants her to repay the full amount of the overpayment. However, until the IRS returns the tax that was withheld, she isn’t able to do so.
Overpaid by more than $42,000
Rachel noticed the error in October 2024 and promptly notified her company about the issue. Unfortunately, the overpayment wasn’t stopped in time. Instead, an extra $24,000 was deposited into Rachel’s bank account, and roughly $19,000 was withheld for taxes.
Rachel hasn’t received a tax refund for the $19,000, so she can only repay $24,000 of the overpayment. According to Dave Ramsey, the IRS should return the remaining amount, but it hasn’t happened yet. With her company wanting the full $42,000 back, she’s not sure what to do.
“Number one: You don’t pay more than what you actually owe,” said Ramsey.
Ramsey suggested a ‘two-check deal,’ which starts by Rachel returning the $24,000 overpayment that had been deposited into her bank account.
“And then you’ll have to repay them the taxes when the tax money comes,” said Ramsey.
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In other words, once the company has resolved its paperwork with the IRS to correct the error, Rachel should receive the $19,000 tax refund, which she can then pass along to her employer.
“You need a tax professional, I think,” advised Ramsey.
The complex situation left co-host Ken Coleman frustrated. “A big company that has all the resources in the world to fix this, and they didn’t fix it quickly. Hate that for her, but it is fixable.”
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What to do after a payroll error
An extra-large paycheck may feel like a windfall, but it’s likely going to become a hassle. Employers who accidentally overpay an employee are legally allowed to demand repayment of those funds from the employee.
When something like this happens at Ramsey Solutions, Ramsey says, “We’re going to pay the stupid tax and we’re going to fix it.”
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Unfortunately, not all employers are willing to let it go.
If it happens to you, and your employer demands repayment, the only thing to do is pay it back. You can make a lump sum payment, or, depending on the employer, have a percentage of your future paychecks deducted as repayment. Don’t forget to hold onto any funds you were entitled to, like your actual paycheck amount.
As was the case for Rachel, things get complicated when taxes come into play.
According to Ramsey, the company needs to resubmit her W-2 with the appropriate income amount. If the W-2 included the overpayment as income, it would impact her taxes owed, which means she may not receive the full $19,000 back as a tax return.
If you find yourself in this situation, document everything. If your employer demands repayment, make sure they uphold their end of the bargain by refiling any appropriate tax paperwork with the IRS to confirm that any withheld taxes make it back to you, which you can then pass on to the company.
In most cases, it’s a good idea to enlist the help of a competent tax professional to help you navigate the tax situation in your quest to repay your employer.
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Sarah Sharkey is a personal finance writer who enjoys helping people make optimal financial decisions for their situation. She loves digging into the nitty-gritty details of financial products and money management strategies to root out the good, the bad, and the ugly. Her goal is to help readers find the best course of action for their needs.
