Deductions & credits

You don't amend because you were paid what you were paid, in 2023, 2024 or whenever.

 

You report the repayment of wages in the year it happened (on your 2025 return).  Note there are actually 3 different things you need to do, and there is a rule not mentioned in the linked article.  There is a discussion here.

https://ttlc.intuit.com/community/taxes/discussion/sign-on-bonus-repayment-tax-adjustment-w2c-or-irc...

 

1. Federal taxes.  This is called an IRC1341 Claim of Right.  You can claim either a deduction or a credit for the repaid wages on your 2025 return.  The deduction is easy and can be done in any version of Turbotax, but to benefit, you must already used itemized deductions.  For the credit, you need to use the desktop version of Turbotax installed on your own Mac or PC from a download, because you need to enter the credit manually in Forms mode, not the Easyguide interview.  You must also calculate the amount of the credit yourself, by figuring what your taxes would have been in the year the bonus was paid if it was not paid, and the difference in tax is the amount of credit.

 

However, you can't use the credit method unless you had a reasonable belief at the time the bonus was repaid that you had an unrestricted right to the money.  If you knew at the time it was paid that you would be leaving and be required to pay it back, then you knew you did not have an unrestricted right, and you can only use the deduction method.  You don't need to send any proof to the IRS when you file your return, but keep proof of your situation for at least 3 years after you file in case of audit.  

 

2. State income tax.  If you pay state income tax, you should be able to make a similar claim of right on your state tax return.  We can't tell you how to do that, since there are so many different states.  Check your state tax web site, state tax instructions, see your own tax pro, or use one of the assisted versions of Turbotax next year.

 

3. Social Security and Medicare Tax.  You can claim a refund for social security and medicare tax that you originally paid on the bonus, if your employer does not refund it.  You do this by filing form 843 explaining the reason for the refund.  This form is not supported by Turbotax and is not part of your tax return, you file it separately by mail (no e-file) and you can file whenever you are ready.  But, you will need to include proof that you paid the taxes, and you will need a letter from your former employer in which they certify that they are not providing a refund of the social security and medicare taxes for you.