If you are repaying the amount in the same year that you received it, the $10,000 gross should not be included in the wages in box 1 of your W-2 for the year, but the $2,965 tax that was withheld should be included in the federal tax withheld in box 2 on your W-2. Thus, if your employer fills out the W-2 correctly, you will not be taxed on the money you repaid, and the extra $2,965 of withholding will be applied to your tax and increase your refund.
