At my previous employer, I relocated in 2022 and was given a $5,000 lump sum relocation payment, which was grossed up (meaning they paid 22% to the IRS plus an additional state amount). This was included in my 2022 income. However, I left the company in 2023 before the repayment period expired, and had to pay back 50% of the lump sum, which worked out to ~$3,600. Since this is greater than $2,500 (50% of what I actually got), I'm assuming I paid for some of the grossed up tax payment.
They've issued me a W2c, but it only shows a wage reduction in Box 3 (Social security wages) and Box 5 (Medicare wages and tips), plus a withholding deduction in Box 4 (Social security tax withheld) and Box 6 (Medicare tax withheld). If I enter these changes, it shows I get no additional refund. My questions are:
Thanks in advance.
Good news. Becuase the gross wage repayment was greater than $3,000 you are entitled to relief under IRC 1341. The general tax rules state that if the repayment is in a different year than the receipt, wages (box 1) are not adjusted but you are entitled to a refund of any social security and medicare taxes you paid on the gross repayment. Some employers will handle this for you by reducing the repayment by the amount of these taxes others make you file form 843 to claim the refund from the iRS.
Since only boxes 3 through 6 were changed you do not file an amended return.
Your options for recouping the income taxes you paid on the gross repayment are:
1) as a 2023 deduction on schedule A line 16 denote as IRC 1341 repayment OR
2) recompute the taxes in the year you received the payment by excluding the gross repayment from box 1.
The decrease in taxes is taken as a credit on schedule 3 line 13b for 2023.