@Newtotax wrote:
@Opus 17 I'm in the same position as the original poster, received bonus in September 2019 and left March 2020. This is my tax professional's advice:
"1. Repay the net bonus + Federal Income Tax Withheld on bonus +
State Income Tax Withheld on bonus.
2. Request former employer to send a W2C – Corrected W2 for the year
in which the employer paid the bonus; the W2C changes Box 3 (Social Security) and Box
5 (Medicare), but not Box 1 (Wages).
3a. Request that your former employer refund the excess Social Security
and Medicare taxes (FICA) that you paid. Your former employer can recover this
refund by filing an amended Form 941 for the period in which the bonus was
paid.
3b. If your former employer refuses to refund excess FICA tax, ask for a
statement indicating the amount of the overpayment and will file this statement
with a request for a tax refund directly with the IRS."
And this is the response from my old employer's HR department:
“Since this bonus repayment is for a bonus paid in a prior tax year, this can be claimed on the annual tax return with guidelines based on the amount of the re-payment. Because it was repayment from a prior year the IRS still requires payment of SS and medicare along with the additional medicare EE tax. The employee though does have the ability to claim this with their annual filings.”
Once we receive the full $35,000, we can write a letter indicating such for your records."
Not sure what to do....
It looks like your employer is going with 3b. If the gross bonus was $35,000, you need to repay the full $35,000. I doubt your employment contract allows you to make adjustments for taxes.
For a $35,000 bonus, you paid approximately $2600 in social security taxes and medicare and $8800 in federal income tax. If you repay the full $35,000, you are "out" $11,400. You get the $8800 back using the claim of right procedure on your 2020 tax return. For the social security and medicare, your employer is refusing to make an adjustment, but your accountant thinks she can get that back for you. You will also need to file a claim of right claim for state taxes, your accountant will help you with that.
