Yes, they can. Taxes paid for you is still money paid to you, since otherwise, you'd have had to pay those taxes yourself--and if you do not return the taxes but return the rest of the money, you will get an improper "windfall" at tax time, since those amounts of tax payments would then be applied against your other taxes due, reducing the amount you'd have to personally pay and saving you money. When there is an overpayment, you must return the *gross* amount, not the net: you have to return all payments (including taxes)  made on your behalf.