Imagine how stressful this situation would be: Natalie’s boss called her into the office recently and gave her some bad news. Thankfully, it was not a layoff, but it was something almost as stressful — and potentially financially devastating.
Her boss said the payroll department had made errors over the past several months, and in total, they’d overpaid by about $7,000 over the course of a year.
Natalie was shocked. Since she works two jobs, she hadn’t noticed the incremental overpayments, and she admitted she hadn’t been reviewing her bank statements every month.
Her boss then gave her even more disconcerting news: He said Natalie can either pay all the money back, or work for free until she makes up the hours. Natalie was shocked. She lives paycheck to paycheck, and she can’t afford a lump-sum payment of $7,000. Her boss didn’t seem to think a repayment plan would be possible.
Natalie didn’t know what to do. She wasn’t sure if her boss could legally compel her to work for free, or even to pay the money back at all.
Federal and state laws allow employers to garnish (automatically reduce) workers’ wages if there has been an overpayment. However, there are also rules about how much an employer can take.
Under the U.S. Consumer Credit Protection Act (CCPA), there are restrictions on the weekly amount that can be deducted from your pay. If the amount of weekly “disposable earnings” (the amount after legally required deductions like taxes and Social Security) are more than $290, a maximum of 25% can be deducted. If your disposable earnings are less than $217.50 (or 30 hours of work at the federal minimum wage of $7.25), nothing can be deducted. For disposable earnings more than $217.50 but less than $290 (40 hours at $7.25), your employer can garnish the amount above $217.50 (1).
State laws will also impact how and when an employer can garnish wages after overpayment. In most states, an overpayment is classified as a wage advance, and employers do not need permission from the employee to make deductions.
If state law differs from federal law on wage garnishment, the CCPA states that whichever law results in less money being garnished will be applied (2).
Luckily for Natalie, she lives in New York, where there are additional provisions that protect workers when employers make garnishments for overpayment.
The law in New York states that the employer must give the employee a notice of intent to make garnishments for overpayment. The notice must also:
Be given at least three weeks before the deductions start (unless the amount can be recouped in one wage payment, and other procedures are followed).
State the amount overpaid in total and per pay period
State the total amount to be deducted and the date of each deduction
Include information about when and how the employee can contest the overpayment
Read more: Robert Kiyosaki warns of a ‘Greater Depression’ coming to the US — with millions of Americans going poor. But he says these 2 ‘easy-money’ assets will bring in ‘great wealth’. How to get in now
Perhaps most importantly, in New York, deductions for overpayments can only be made for the eight weeks of overpayment prior to the delivery of the notice of intent to the employee.
In New York state, if the overpayment is less than or equal to your next paycheck, the entire amount can be deducted from that check. However, if it’s more than the next paycheck, the maximum amount that can be deducted is no more than 12.5% of your gross earnings, and the amount cannot make your effective hourly wage less than the state minimum wage (3).
Natalie’s boss’s suggestion that she work for free to pay off the wage overpayment is illegal. Because she lives in New York state, her employer can only deduct the overpayments in the eight weeks prior to her receiving notice. The meeting with her boss also doesn’t count as official notice; her employer needs to provide her with a document that meets the above parameters.
Natalie should let her employer know that asking her to work without pay is a violation of labor laws. It is her employer’s responsibility to serve her proper notice about the overpayment and upcoming garnishment.
Since her state offers more protection around this issue, Natalie most likely won’t face a wage deduction that would leave her unable to pay her bills. Still, her wages will be impacted, and she needs to budget accordingly. She may need to cut back on discretionary spending until her paychecks are back to the normal amount.
In the future, checking both her pay stubs and her bank statements will go a long way in preventing this kind of unexpected loss of income — which will also help you catch if your employer is underpaying you. An Ernst & Young report from 2022 found that the average company’s payroll accuracy is only 80.15%, which means you could be missing out on wages you’re owed if you’re not watching your bank balance (4).
If you believe your employer has made deductions from your pay illegally, you can file an administrative claim with your state’s department of labor, and depending on your state, you may be able to file a lawsuit (2).
Join 200,000+ readers and get Moneywise’s best stories and exclusive interviews first — clear insights curated and delivered weekly. Subscribe now.
‘It’s scary’: American families are homeless, unable to pay mega bills after Social Security benefits blunder. Lawmakers want to put a stop to it — will Congress come to the rescue?
Social Security is meant to be a safety net for the disabled and retired. It delivers about $1.4 trillion in benefits to millions each year.
However, the federal agency that runs it has been aggressively trying to claw back billions of dollars from those it now says it overpaid.
Don’t miss
An investigation by KFF Health News and Cox Media Group revealed that the Social Security Administration had demanded repayments from more than 2 million people a year. Beneficiaries were asked to repay amounts which sometimes reached tens of thousands of dollars.
When Woods, who has lupus and congestive heart failure, couldn’t repay that amount, she was told her monthly checks of $2,048 would be withheld until it was enough to cover her debt.
KFF and CMG say their reporting on the matter has triggered a congressional hearing, additional Senate oversight of the agency, an apology from the head of the SSA to Congress about understating overpayments, and an ongoing internal policy review.
In November, two senators on the Senate subcommittee that oversees Social Security wrote a letter urging the SSA “to take additional action to reduce overpayments and prevent undue harm on the most vulnerable Social Security recipients when recovering overpayments.”
In December, the Senate Finance Committee said it’s “going to watchdog Social Security’s overpayment program, and will meet with Social Security every month until it is fixed.” Chairman Ron Wyden wrote, “We were told in the past that Social Security was fixing the problem. That clearly has not been the case.”
Under its new head Martin O’Malley the SSA has proposed using information from payroll data providers to reduce improper payments.
The SSA’s overpayment problem
In the fiscal year 2023 (Oct. 1, 2022 to Sept. 30, 2023), the SSA recovered over $4.9 billion in overpayments, but it ended the year with $23 billion of overpayments still uncollected.
According to KFF Health News, the agency has admitted in the past that many overpayments were the result of errors by the government rather than the people — often elderly, poor or disabled — receiving the extra money.
Those getting Social Security benefits typically spend their checks on critical living expenses and health care. They’re not stashing it away to cover unexpected four- or five-figure repayment bills from the SSA.
For some, the repayment burden is life-altering. As part of its probe into the matter, WSB-TV Channel 2 Action News spoke with Nicole Eberhart at an extended-stay hotel, where the legally-blind mom is now living after losing her $1,700 monthly disability check from the SSA due to overpayments.
“I was using that money to actually pay for the apartment we were living in,” she told consumer investigator Justin Gray, who has been digging into the overpayments issue for three years.
As a result of the months-long investigation in partnership in KFF Health News, SSA Acting Commissioner Dr. Kilolo Kijakazi said in Oct. 2023 that she plans on “putting together a team to review overpayment policies and procedures to further improve how we serve our customers.”
In the meantime, here’s what you can do if you receive a dreaded repayment notice in the post.
Paying back benefits
As of December 2023, there were 67 million Americans receiving Social Security benefits. Of that total, over 8.5 million Americans were claiming disability insurance from the SSA, receiving an average monthly benefit of $1,395, according to federal data.
With numbers like that, it is only natural that mistakes can and do fall through the cracks — but the SSA does have official procedures in place to resolve payment issues.
“Benefits are overpaid when we can’t accurately calculate your benefit amount because our information is wrong or incomplete,” the SSA explains online. “It can happen if you don’t share updates with us about what’s changed in your life, like your ability to work, living situation, marital status or income.”
If you receive a letter from the SSA which says you got more money than you should have, you have at least 30 days (plus five mail days from the date of the notice) to pay back the full amount. If you fail to do so within that time frame, the SSA will start collection of the overpayment — potentially by reducing or halting Social Security monthly benefits, or garnishing wages and federal tax refunds — unless you submit a timely request for a waiver or reconsideration.
How to reduce or appeal your repayment
A shock Social Security repayment notice doesn’t have to end in your financial ruin. There are ways to request help from the SSA.
If you receive a valid overpayment notice but are unable to pay the SSA back within 30 days, you can request to repay your debt in smaller and more manageable monthly payments.
If you don’t agree you’ve been overpaid or the overpayment amount is incorrect, you can submit an appeal online or by mail. Make sure you have all of your medical information and supporting documents (including forms, legal documents, and written statements) ready before requesting a repayment consideration.
You can also ask the SSA to waive your repayment if you can’t afford it and feel the error wasn’t your fault, or if you think the overpayment is unfair for another reason. Again, the SSA may ask to see evidence of your income and expenses before they agree to waive your debt.
Receiving any type of payment demand can be scary — especially if you’re not expecting it — but the worst thing you can do is run from it. It is always worth contacting your collector to see if you can come up with a repayment plan that works for you and exploring other ways to improve your situation.
What to read next
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
