@Jbthomp07 wrote:
Sorry to revive an old thread, but I'm encountering this situation with a bonus received in 2020 and repaid in 2021.
I received a $5,000 bonus that ended up being just shy of $3,600 after taxes. When repayment was requested from my former employer, they explained that the full $5,000 needed to be repaid and the included explanation was "Per the IRS, the employee owes the entire gross, and we will only adjust his Social Security and Medicare wages/taxes. Once the repayment has been received, we will process a corrected 2020 W2." So luckily I was still holding the bonus in my savings account, but I still came out of pocket $1,400 to repay them.
(Not being a tax pro, I didn't understand the distinction of "we will only adjust SS and Medicare wages")
I ended up in this thread because I've now repaid the full bonus, received my W-2c and entered it, but I'm not seeing my 2020 refund change at all. I was expecting it to increase some. From what it sounds like here, if my former employer won't directly refund me the excess SS/Medicare taxes then I'll be eating that overpayment of $382.50 off the $5,000 bonus? The only real action left to take is to wait a year and file a Claim of Right claim on my 2021 taxes in the hope of recouping the remaining $1,000-ish that I'm still out-of-pocket? Hoping someone (@Opus 17?) can confirm if my understanding is correct or not.
The company can't adjust your box 2 and box 17 state and federal income tax withholding--whatever was withheld was withheld, and they can't adjust your box 1 taxable wages because whatever was paid in 2020 was received by you in 2020 and is taxable in 2020. You will get your federal and state taxes on the $5000 back by filing the claim of right on your 2021 return.
The social security and medicare is a little different. If they issued a W-2c that reduces your box 3 and box 5 wages, and reduces your box 4 and box 6 social security and medicare tax withholding, they should also be sending you a check for the difference. They can't actually withhold (for example) $5000, and report withholding $4690, unless they pay you back the extra $310.
If they reduced your box 3 and 5 wages by the amount of the $5000 repayment, then boxes 4 and 6 should be reduced by $310 and $72.50, and so they owe you a check for $382.50.
If they refuse to issue a check for the $382.50, you need to get that in writing. You can then file a form 843 with the IRS, which is a request for refund of excess social security and medicare tax. You would explain the situation about the repaid bonus, you would explain that they recalculated the amount of SS and medicare you should have paid, but that they refused to refund it. Include copies of the original W-2, the corrected W-2, their refusal in writing to pay the $382 refund, and any other documents related to the repayment of the bonus. Turbotax does not include form 843 and this is not part of your regular tax return, you file it separately whenever you are ready.
