If The Tax Withholding Is Wrong, Don’t Rely On The Employer To Fix It – Part 2

Over a year ago I blogged about the situation of former employees of Verizon who had never worked or resided in the United States but who had U.S. income taxes withheld from payments under benefit plans in which they participated while they worked for Verizon. The former employees had brought a claim for breach of fiduciary duty that was dismissed on the grounds that the remedy for improper withholding was to file a refund claim with the IRS.

A recent decision by the U.S. Court of Appeals for the Federal Circuit affirmed a ruling from the U.S. Court of Federal Claims denying that refund to one of the individuals who had brought the breach of fiduciary claim. While the suit against Verizon was brought as a class action, this was an individual refund claim brought by an Italian citizen who never lived or worked in the United States during the 30 years that he worked for Verizon. Unfortunately, the individual brought the refund claim more than three years after the date that a tax return would have been due for the year in which the amounts were withheld. The lower court had found that the claim was not brought within the applicable three year statute of limitations and the appeals court affirmed.

The amount of taxes improperly withheld was approximately $70,000. The IRS, Verizon and the courts all agreed that the amount should not have been withheld. However, because the refund claim was late, that money will not be repaid to the former Verizon employee.

The lesson remains:  If amounts are improperly withheld from benefit plan payments, employees should make certain that they file timely refund claims with the IRS.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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