You will need to enter the w2 and then remove the additional income that was repaid. To remove the additional income, follow these steps:
- go to the federal income section
- scroll to the bottom / show less common income
- Miscellaneous Income, 1099-A, 1099-C, Start
- Scroll to the bottom
- Other reportable income, Start
- Other taxable income?
- Select YES
- Description - something to explain your situation -money repaid to w2 issuer
- Amount, enter your amount with a negative sign in front, example -5000
- Continue
The fact that payroll updated boxes 2 and 3 shows that they know you repaid the money and box 1 needs to reflect it so the best option is for them to issue a corrected form. It seems like boxes 3 and 5 would have been the updated boxes. Create a paper trail to prove your case as the IRS could take a few years to ask. Keep your severance agreement, proof of the repayment, copies of emails to employer, phone log, everything you can to prove you tried in good faith to get a corrected w2, including your question here for why you filed the way you did. This shows good faith on your part and that you are trusting competent tax advice.
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