Amending 2020-1040x: reduced incom by 25K, Turbo says I owed IRS $1300

[icj808]

Hello,

My 2020 1040 tax was done OK. In 2020 got a job with relocation pack of $25K reflected in my filing. In 2021, the job became WFH. So I gave the $25K to the company. Company sent me W2C to reflect the correct amount. Got into my turbo Tax 2020. Click on Amend. was led to amend by putting in the correct SS income wage.... Turbo 2020 said I owed IRS $1300. When I got the package, I actually receive net of ~$16K with all the deductions.. when I paid back in 2021, I paid $22k. Company said it had credit my pay at IRS. So as of now net net I think IRS owes me $6500~, but Turbo Tax says NO, not only I do not get back the $6500, I owe IRS another $1300. What is happening here, barring software glitch? Thanks.

[Mike9241]

you were paid the relocation package in 2020 you paid it back in 2021.  the tax laws say you get the refund on the income taxes you paid on the RP in 2021. this is section 1341 of the tax code 

what you should have done first for your 2020 return and not as an amendment but simply an adjustment to box 1 of your w-2  is to reduce it by the relocation gross compensation you paid back in 2021. this reduces your 2020 income taxes.  the difference between your original total Federal tax liability for 2020 as originally filed and the lower amount recomputed is claimed as a tax credit on your 2021 return. this amount is reported on Schedule 3 line 13z as section 1341 credit.

print out pages 1 and 2 of the 1040 and save for your records 

then you change back box 1 to what was originally entered.

save the return

the only items that should have changed on your 2020 w-2 are 3 through 6 which relate to social security and medicare for which you would not need to file an amended 1040.  if you have state income taxes what you need to do to recoup the taxes paid on those wage can be the same or completely different 

here is a summation

Repayment in subsequent year. If the employee repays the compensation in a subsequent year, the employee must repay the net payment plus the income tax withheld. (there may have been other items deducted that you have to pay back) The employer will recoup the FICA tax withheld by amending its 941 returns. The employer must also issue a corrected W-2 showing the employee’s corrected Social Security and Medicare compensation, and corrected Social Security and Medicare withholdings (boxes 3, 4, 5 & 6). Rev. Rul. 79-311. However, the W-2 compensation reported in box 1 and the withholding in box 2 stay the same. The reason is that the employee has received the benefit of the income tax withholdings when the employee filed his or her income tax return for the year.  - any income taxes paid on the returned compensation is recouped as described above.

if the company did not handle it this way it is not in compliance with the tax laws and you should consult with a tax pro.  

if only boxes 3-6 changed no amended return should be filed.

[icj808]

Thank you for the fast,  accurate relief. Now I am true believer TB Tax is more than a software. It does have deep knowledge base.

So,

1. I don't need to spend time on that 1040X, since only 3-6 boxes are populated on W2C. Not to AMEND.

2. But to ADJUST. Going back to online TB Tax 2020 (the year in question) where I have filed for 2020 successfully

Confusing on W2C is the fact that only 3-6 are populated leads people to change online on 3-6, while actually one needs to change box 1, the one the corresponding box on W2C has missing values. This is not user-friendly on W2C requirement part, not the company. According to your response, the company did everything correct.

I did simulate while waiting for response by applying the declared difference in Box3 ("DIFF3") on Box1 online at TB tax premier 2020, saw the $ on top ~$6300, instead of previous "you owe me $1300". Let me call this version VNEW. Let me call the version I successfully filed, with $0 standing on top now, VOLD.

You  suggest "print out pages 1 and 2 of " the VNEW 1040 and save for my record?  Then return to VOLD status and save VOLD. Then what? Follow the stream of VNEW, confirm details, somewhere click the button SUBMIT. Eventually there ought to be address to mail my W2C +VNEW.... so to get $ back? Since we don't call it and don't do it as AMENDING by 1040X，what is the document, delivery requirement for ADJUSTING 1040 2020?

Numeric difference: the $ I paid back in 2021- $ I received in 2020 = ~$6600, while TB tax $ in VNEW is $6300, about $260 difference.  Not that I care that much, but what is reconciliation here?  DIFF3 aforementioned MINUS the $ I paid back in 2021 is indeed the total of differences in Box4 and  Box6 in W2C.

Thanks again. This is very helpful. Just need some clarification on next steps to close out the matter.

[icj808]

After reconciling all info, research, it does not appear I can get anything back from IRS until >May 2023. The 1040X is not going, according to your saying I should not amend it since only 3-6 boxes on W2C are populated. Wonder if I manually fill out 1040X, attach the 1-2 pages+ original 2020 1040, W2C + my explanation, will IRS reject it saying YOU CANNOT amend it because only boxes 3-6 are populated on your W2C. Technicality?

I did calculate out the correct $6600~, printed as you suggested. I should have included it in the 2021 filing weeks ago as 'tax credit' with all the supporting documents. Now I have one more chance in April 2023 to do it. 'You have up to 3 three years to do it.....' Really one only has three chances, not 3*365, over 1000 days anytime to get the money back.  The seemingly gloriously convenient 1040X is just conveniently not designed for this. In this specific case, the Turbo Tax software is not going anywhere except providing 1-2 pages of revised calculation (I sought all combination of buttons at the software). I am not normally the person who does the tax annually. Asked a pro yesterday. She said she does not know the software. She has not done this relocation package thing for years, but I should not have to wait until 2023. I am pondering if I should hire her or I actually have to wait for 2023 regardless who is trying on my behalf. She did say since the company has told me they have credited my tax at IRS, the $ should already be sitting at IRS waiting for me.

[icj808]

In my case, of course it is not possible for me to have done it ~ 2021 April filing for 2020. So your saying "should have done first in 2020 return", I think, meant "should have do first in 2022 filing for 2021 back ~April 2022“ . Your answer is indeed very helpful. Thanks again.

[icj808]

Here is update.

I followed this successfully . The TBTax software figured out reduction automatically. I mailed both FED and STATE 5/26. Received State refund already given the state has budget surplus. And FED is still waiting given it has deficit. But it is only half a month.

"

what you should have done first for your 2020 return and not as an amendment but simply an adjustment to box 1 of your w-2 is to reduce it by the relocation gross compensation you paid back in 2021. this reduces your 2020 income taxes."

One thing noteworthy was when the company withheld the tax it took the total of FED and STATE taxes. If you think that withhold is just fed, you may have gap in your expectation.

[fanfare]

@icj808 

USA has run a deficit since the Clinton Administration.

Regardless, IRS sends tax refunds promptly once your return is processed.

IRS has a backlog right now..

The deficit has nothing to do with it.

[icj808]

Well, the registered mail says the package was delivered 5/29/2022. I emailed the state refund the same day different registered mail package. The state refunded in 6 weeks. IRS: I went online to check the refund status using SSN, b-day, zip code... It keeps on saying not available info... like I never mailed it.   

I know backlog... this is 9 months already. No record? 

Is it OK to recognize it in this year's filing? If so how to use Turbo to do it? what if I incorporate it in this year's filing, then IRS wakes up "why did you do this? we got your 1040X...." what should I say? Thanks. 

[AmyC]

1. You should call 800-829-1040.

2. No, you cannot mix years and income.

Status of Processing Form 1040-X, Amended Individual Tax Return: 

As of February 18, 2023, we had 503,000 unprocessed Forms 1040-X. We are processing these returns in the order received and the current timeframe can be more than 20 weeks. Please don't file the same return more than once. Taxpayers should continue to check Where's My Amended Return? for the most up to date processing status available.