retention bonus received in 2021 that was repaid in 2022. Amend 2022 return? If so, would 2022 amended return be timely filed by April 15. 2026?

[mijohn]

My wife received a retention bonus of $5,000 in 2021 that she repaid in 2022 since she opted to retire in 2022. We've always filed jointly. After she repaid the $5,000, she received a Corrected Wage and Tax Statement (Form W-2c) for 2021, but the only corrections on the W-2c were for her Social Security Wages (Box 3) and Medicare Wages (Box 5) and her Social Security Tax Withheld (Box 4) and Medicare Tax Withheld (Box 6). I thought perhaps her employer would have sent her the Form W-2c with her Box 1 corrected as well, but after doing a bit more research, it appears that this is a so-called claim-of-right repayment and that we should have taken a deduction or credit on our 2022 tax return. My question then is: Should I amend my 2022 return to take the deduction or credit and if so, do I have 3 years from the due date of the 2022 return (which I think was April 17, 2023, so until April 17, 2026) to timely file the amended return for 2022? Would my state (Pennsylvania) situation be the same (i.e., would I file an amended 2022 return that would be due no later than April 17, 2026)?

[MindyB · Accepted solution]

Yes, you are correct that this is a Claim of Right Repayment, which is a deduction taken in the year of repayment for an amount you thought you would keep. If you need help entering this on your return, see this article: What is a claim of right repayment?

Also yes, you have 3 years to amend your 2022 1040, and an early return is considered filed on the due date. ‌Per the IRS, "generally, for a credit or refund, you must file Form 1040-X within 3 years after the date you filed your original return or within 2 years after the date you paid the tax, whichever is later." The due date of 2022 tax returns was April 18, 2023, because April 17th was a holiday in DC.  You must file the 2022 1040-X by April 20, 2026, because April 18, 2026 is a Saturday. I would recommend not waiting until the very last day, because you will need to paper file and the mail can be slow.

Pennsylvania also has a deadline of 3 years for filing an amended individual return. They followed the federal due date of April 18th, 2023, so the amended PA return for 2022 is also April 20, 2026.

[mijohn]

MindyB, Thank you so much for your reply. It is very reassuring. I am in Pennsylvania and also must file a local income tax return. Do you know if the same process is to be followed for my local income tax return, (i.e., rather than amend my 2021 local return, would I instead amend my 2022 return)? If so, do you know how I would do that? My municipality uses Keystone Collections Group. Would I report it on line 11 "Quarterly and Extension Payments/Credit From Previous Year"?

[DavidD66]

I recommend you contact the municipality (or the group that handles their tax filing) for guidance on how to amend or claim a credit. 

In addition to filing a 2022 return for the claim of right, you also need to file a 2021 amended return to get a refund for the excess social security and Medicare tax that was paid.  

[mijohn]

Hi David, I accessed my turbotax program for 2021 (I have the desktop download version of deluxe) to amend my return. I then entered the info from the 2021 W2-c with the corrected SS and Medicare wages and withholding (boxes 3, 4, 5, and 6). When I got to the "Amended Return Summary Page" on the step-by-step it said "We don't detect and differences between your original 2021 return and your amended return. If you're sure you need to amend, explain why below." I provided the explanation but haven't progressed further in the program as yet.

I just want to make sure that this is normal and that I am proceeding correctly. I guess I am having a tough time wrapping my head around who will send the refund for the excess social security and Medicare tax that was paid. Will it be the IRS or the Social Security Administration and the Centers for Medicare and Medicaid services? Or will the refund of the SS and Medicare taxes also be something that is accounted for on the amended 2022 return but still requires the amended 2021 return to be filed?

[AmyC]

You are filing the 2022 with the claim of right repayment. We follow the rules from IRS Repayment over $3,000. To do this in TurboTax, follow the steps in What is a claim of right repayment?

Then you are looking for the excess Social Security and Medicare tax withheld in 2021. The first step is to ask the employer. If they will refund the money, that saves a lot of trouble. If the employer wont refund your money, you must file Form 843.  To get a refund for the excess withholding, fill out IRS Form 843: Claim for Refund and Request for Abatement according to the Form 843 Instructions and mail it in separately. Make a copy to keep with your tax return paperwork. 

[mijohn]

After doing some more digging, it appears the retention bonus my wife received in 2021 was $6k and not $5k. I apologize for not being accurate with the amount in my initial post. Then in 2022 she was instructed by her employer to repay only $5,541 (i.e., the $6k minus the 6.2% in SS tax ($372) and 1.45% in Medicare tax ($87)), which she did. After she repaid the $5,541 in 2022, the 2021 W-2c my wife received in November of 2022, reflected the $6k reduction in SS and Medicare wages in boxes 3 and 5 and the $372 less of SS tax withheld in box 4 and the $87 less of Medicare tax withheld in box 6. 

My question is: Do I need to file a form 843 for the $372 of SS tax and $87 of Medicare tax that was withheld from the initial payment OR not as it appears that this may simply be an internal accounting issue on the part of the employer that they have already addressed? (I understand that I still need to file an amended return for 2022.)

[AmyC]

The employer did a great job handling the excess so you don't need the form 8443.  You just need to amend for the repayment. Well done! 

If you miss the deadline, you don't get a refund if you file more than 3 years after the original deadline. That return was originally due April 18, 2023.

The post office marking is the proof of mailing it on time. Send it with tracking, no signature required and keep your proof of mailing on time.