Tax and repayment information for employees

From Public Services and Procurement Canada

Below you will find information on how to repay overpayments and salary advances and how these may affect your taxes.

Client Contact Centre call volumes

The Client Contact Centre is open until 21:00 EST today, January 19th, 2018, to continue accepting your calls regarding overpayments. You can also submit a Feedback form to report your overpayment, which will be accepted until 23:59 EST.

Important deadline

If the Public Service Pay Centre or departmental compensation advisor registered your overpayment in Phoenix before January 19, 2018, your 2017 tax slips will not include the overpaid amount, even if you have not fully repaid the overpayment. You should have received a letter from the Pay Centre or your department explaining your repayment options. If you have not received a letter about your overpayment, you need to contact the Call Centre or departmental compensation advisor by January 19, 2018 to ensure the overpayment is registered in Phoenix.

If the Pay Centre/ departmental compensation advisor did not register your overpayment in Phoenix before January 19, 2018, your overpayment amount will be included on your original tax slips. Once your overpayment is recorded in Phoenix, an amended tax slip will be created for you.

Your amended 2017 tax slip will report your correct annual earnings for 2017, as well as any tax withholdings on the overpayment. If your only income is your federal salary, you should be entitled to a refund of the tax withholdings on the overpayment. Your employer will automatically submit the amended T4 with the Canada Revenue Agency who will automatically reassess your tax situation.

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What is an overpayment?

An overpayment is an outstanding balance created for an employee equal to a payment that was issued, but to which the employee is not entitled to, for example, a salary payment at a higher salary rate than entitled.

The following situations are NOT overpayments and are subject to different processes and procedures:

Please note:

  • Phoenix uses the same functionality, creation and recovery of overpayments, in all situations listed above. Phoenix creates an overpayment when an employee has been paid an amount which they are not entitled to receive, as well as when dealing with retroactive corrections, for example, late acting or leave without pay, to an employee’s record.
    However, different processes and procedures apply to these situations and recovery of outstanding amounts.
  • For overpayments defined above, hold on the recovery of an overpayment (when the overpayment amount is greater than 10% of the gross payment) is now automated by Phoenix for all overpayment scenarios except for as and when required, leave without pay, and terminated employees. This means that if a generated overpayment is greater than 10% of gross payment, it will not be collected and will be put on hold. An employee will be contacted to explain repayment options and repayments will not commence until a repayment agreement is reached with an employee.

Tax implications of an overpayment

There should be no income tax implication for the employee if the overpayment transaction is completed in the pay system in the same year the overpayment occurred. The repayment will be for the net amount and employee tax slips (T4 and Relevé 1) will be produced showing both adjusted earnings and withholdings.

If an overpayment for a given year is recorded in the following calendar year, the employee must repay the gross overpayment since the Government of Canada has already provided the tax withholdings, for example, income tax withheld from your wages, to the Canada Revenue Agency (CRA) on behalf of the employee. Only the earnings are adjusted on the tax slips. The Canada Revenue Agency is not in a position to reimburse the employer as the law requires they repay the amount to the individual.

The Public Service Pay Centre has agreed to take into account, in its overpayment recovery process, the provision for an employee first settling tax recovery with the revenue agency before reimbursing their overpayment (for departments served by the Public Service Pay Centre). For these employees, their tax slips will be amended automatically by the system once the transaction creating the overpayment is processed. The Canada Revenue Agency and Revenu Québec will process the amended tax slip and reassess the employee’s tax return. Repayment of the overpayment by Public Services and Procurement Canada will not be required until the employee receives the amended tax slip and their return is reassessed, giving them credit for the excess withholdings. Furthermore, there are flexibilities available for employees to repay any monies owed to accommodate individual needs.

If your department is served by the Public Service Pay Centre and the overpayment is for a gross amount, there will be two overpayment related letters sent to the employee. The first is to inform the employee of the overpayment and the second letter, which will be issued in July, is to make arrangements for the repayment. This will allow time for the CRA and Revenu Québec to adjust employees’ tax accounts, taking into consideration the deductions owed to them and send them a tax refund, if applicable. If you believe you have an overpayment in a previous calendar year and have not received a letter, please contact the Public Service Pay Centre.

Note: Emergency salary advances and priority payments are not overpayments. They do not affect the tax slips for an employee unless these payments are the sole earnings received for a given year.

If you are not receiving pay services from the Public Service Pay Centre, contact your department directly for information on overpayments and repayment process.

Outstanding salary payments owed to employees

Your tax slips are based on the actual amounts which you are paid in a calendar year. If you have an outstanding salary payment in 2017 and you did not receive a payment, the amount will not appear in your tax slip for 2017. Any payments you receive in 2018 will be reported on your tax slip for 2018. This is in line with income tax regulations.

If an outstanding salary payment affects your eligibility for government benefits, you may submit a claim under the new Phoenix claims process. Each claim will be considered on its individual merits and settled based on valid receipts and other supporting documentation.

Overpayments received in 2017

If you received an overpayment in 2017 and it has been registered in Phoenix before January 19, 2018, your tax slips for 2017 will not include the overpayment amount and repayment will be for the net amount.

If the overpayment was not recorded in Phoenix before January 19, 2018, the original tax slips for 2017 will reflect the overpaid earnings and associated deductions. An amended tax slip will be produced for you.

Your amended 2017 tax slip will report your correct annual earnings for 2017, as well as any tax withholdings on the overpayment. If your only income is your federal salary, you should be entitled to a refund of the tax withholdings on the overpayment. Your employer will automatically submit the amended T4 with the Canada Revenue Agency and if applicable a Relevé 1 with Revenu Québec who will automatically reassess your tax situation.

Since there was no opportunity in 2017 to make the remittance adjustments, you will need to repay the gross amount of the salary overpayment as opposed to the net amount (gross pay less source deductions).

Overpayments received in 2016

If you received an overpayment in 2016, but discovered it in a subsequent year, you will need to repay the gross amount of the salary overpayment as opposed to the net (gross pay less source deductions).

Once your overpayment is recorded in Phoenix, your 2016 tax slip will be adjusted to remove the overpayment and will reflect the correct annual earnings. Original source deductions associated with the overpayment to revenue agencies will be reported on the amended slip and will be taken into account when your annual income tax return is reassessed.

Emergency salary advances or priority payments

Emergency salary advances and priority payments are not considered salary overpayments. If you have received either type of advance, the money will be recovered only after you have started receiving your regular salary and received the full amount you are owed. The recovery period, in most cases, will extend over the same length of time as you received your advances.

If you received one or multiple emergency salary advances or priority payments, but you also started receiving your regular pay, your tax slips will not include these payments, whether you have repaid the full amount owed or not.

Repaying salary overpayments

If you are receiving or have received a salary overpayment, you are required to repay these funds.

What is the process for overpayment recovery?

If you are served by the Public Service Pay Centre, there is a 3-step process to resolve questions and issues regarding overpayments if they are discovered in the same calendar year:

  1. Step 1: An overpayment has to be first recorded in Phoenix, to confirm the exact amount for repayment. An overpayment letter is then issued, and the employee is expected to respond within 6 weeks of receipt to establish a recovery plan.
  2. Step 2: An overpayment recovery plan is established with the employee. See repayment options below.
  3. Step 3: The recovery method is recorded in the Phoenix pay system. If the employee sends in a lump sum, the repayment amount is applied against the overpayment. If the recovery is against first available funds or a scheduled repayment plan, this is entered into the system allowing the compensation advisor to close the case.

If an overpayment is discovered in subsequent calendar years, the following process will apply:

  1. Step 1: An overpayment has to be first recorded in Phoenix, to confirm the exact amount for repayment and to produce an amended tax slip. An overpayment letter is then issued to the employee, indicating the overpayment amount. The Public Service Pay Centre will wait until summer to allow an employee to complete reassessment with CRA and Revenu Québec, to proceed with the next steps.
  2. Step 2: An overpayment recovery plan is established with the employee. See repayment options below.
  3. Step 3: The recovery method is recorded in the Phoenix pay system. If the employee sends in a lump sum, the repayment amount is applied against the overpayment. If the recovery is against first available funds or a scheduled repayment plan, this is entered into the system allowing the compensation advisor to close the case.

Important reminder: Emergency salary advances and priority payments are not salary overpayments.

When you must repay

If you are an active employee or an employee on leave without pay, the Public Service Pay Centre will begin recovering salary overpayments from you only after:

Recovery options for active employees or employees on leave without pay

For recovery of overpayments (when the overpayment is less than 10% of your gross bi-weekly salary)

If your overpayment is less than 10% of your gross bi-weekly salary it will be recovered in one lump sum from a subsequent regular pay in the coming weeks. There is no additional action required on your part.

For recovery of overpayments (when the overpayment is more than 10% of your gross bi-weekly salary)

You can repay any overpayments in one of the following ways:

  1. Option 1: Lump Sum: Repay the full amount owing in one lump sum.
  2. Option 2: Installments: Repay the amount owing in installments determined in discussion with compensation advisor. The number of installments is flexible and can be changed at any time if the employee is in a financial hardship situation.
  3. Option 3: If employees do not respond to the overpayment letter from the Pay Centre, repayment in the amount of 10% of their regular pay will automatically be deducted from each pay cheque until the overpayment is fully repaid. This percentage is flexible and can be changed at any time if the employee is in a financial hardship situation.

Repayment options for former employees

If you are a former employee, overpayments are recovered in full from first available funds on termination of a person’s employment as per the Directive on Terms and Conditions of Employment. You will receive a letter which requests that a personal cheque, money order or bank draft made payable to the Receiver General for Canada to cover the outstanding amount of your overpayment.

If you are a former employee and want to verify if an overpayment is recorded in Phoenix or would like to arrange repayment before your return to work, you must contact the call centre at 1‑855‑686‑4729.

If your department is not served by the Public Service Pay Centre, follow your departmental repayment process or contact your compensation advisor.

How to mail your repayment by cheque

If your department is served by the Public Service Pay Centre, a personal cheque, money order or bank draft made payable to the Receiver General for Canada is mailed to:

Organization:
Public Service Pay Centre Mail Facility
Address:
PO Box 6500
Matane QC G4W 0H6

The completed letter provided to you by the Public Service Pay Centre and the pay action request form must accompany your payment.

Select "recovery of overpayments" in sections 2 (work type) and 3 (sub type) of the pay action request form.

If your department is not served by the Public Service Pay Centre, follow your departmental procedures and the personal cheque, money order or bank draft is made payable to the Receiver General for Canada.

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