@YadavShradha18 wrote:
Hello Opus17,
Thank you for your reply, just to make myself clear, I made an error. I got money ($25000) in December 2022 and returned it in March 2023. They gave me W2 and W2-c together in april 2023.
Should I contact them for fixing it up or I have to do something else.
That makes a big difference.
Your box 1 wages and box 2 withholding can't be changed because that's what you were actually paid and actually had withheld in 2022. If they changed your box 3-6 to show less social security and Medicare tax withheld, they should refund you the difference.
When you have repaid wages, you claim a deduction or credit on your tax return for the year you made the repayment. Since the repayment was made in 2023, you will pay taxes in 2022 on what you were actually paid in 2022, then you will claim a deduction or credit for the repayment when you prepare your 2023 return.
There are two methods. You are allowed to chose which method you use, if one gives you more money than the other. The repayment must be more than $3000, if the repayment is less than $3000, there is no deduction or credit, you are just stuck.
Method 1 is to claim a special itemized deduction not limited by the 2% rule, for the amount of repayment. You can do this in any version of Turbotax.
Method 2 is to claim a special tax credit called an IRC 1341 claim of right credit. If you already itemize your deductions (for mortgage, charity and so on) and your income is about the same in both years, both methods will be about the same. If you don't normally itemize your other deductions, you should use the credit method.
To claim the credit, you must be using Turbotax installed on your own computer from a CD or download. Switch to Forms mode and make a manual entry on schedule 3, line 13z, with the notation "IRC 1341" next to the amount.
To calculate the amount of the credit, you recalculate your 2022 tax return as if you had not received that money, and see how much less your income tax would have been.
To get a state income tax adjustment, you would make a claim of right on your state return as well. Exactly how and where to do that will depend on your state.
One final note:
You can use the special itemized deduction method no matter why you left the job. However, you can only use the IRC 1341 tax credit method if you had a reasonable belief at the time the wages were paid that you had an unrestricted right to the wages. For example, if the bonus was contingent on staying with the employer for 3 years but you were already planning to look for a different job when you signed the contract, then you did not have a reasonable expectation that the bonus was unrestricted. If audited, you might be asked to prove that you had an unrestricted right to the wages at the time you received it.
