@Anonymous wrote:
It really is such a pain. Of course the IRS makes things difficult to get the money back. They could have easily created a field in the form to where you simply indicate a repayment amount and your employer could provide some tax document to prove it. I assume they just figure most won't bother and they keep the change.
Of course, it is Congress that makes the tax laws, not the IRS. And we haven't even really discussed the other rule about a "claim of right" credit. To use the IRC 1341 "claim of right" credit method, you must have had a reasonable belief when you received the wages, that you had an unrestricted right to them. If you knew or had reason to know your rights were not unrestricted, you can't use the credit method and are only allowed to use the itemized deduction method. A claim to an unrestricted right is tricky in the case of a bonus that you knew had a service requirement. Was that really unrestricted? What if you signed a contract with a 2 year repayment clause but you secretly knew you were leaving early, perhaps planning to move for family reasons but you took the job and didn't tell the new employer. Then you didn't have an unrestricted right -- you knew or should have known that you would have to pay it back. If audited, you might lose the credit and have to recalculate your tax using the itemized deduction method, which may result in less or no money back to you.
