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.