gross-up tax on the repayment of $40K

[juggejin5]

Two years ago, when I joined the company, I received 40K + gross-up tax on W2. The 40K was paid as the reimbursement of relocation expenses.

Now, due to job change, I repaid the total amount of $40K but no w2-c was provided.

How should I input this in Turbotax without w2-c? Does the gross-up tax portion belong to me?

thanks,

J.

[AmyC]

1. You repaid more than $3,000 so you will do a tax credit. See how below.

2.The grossed up wages represent the additional FICA tax the employer paid and is not a concern for you, see legal comment.

Since you repaid more than $3,000, you claim a credit. These are the steps:

1. Figure your 2020 tax as normal, without deducting the repaid amount.
2. Locate prior year taxes that are now incorrect. Note the amount of tax liability.
   1. Refigure your tax from the earlier year(s) subtracting the income that you have repaid.
   2. Subtract the difference in tax liability for the year.
   3. The difference is your 2020 credit allowed. This is your right of claim credit. 
   4. This becomes a credit on your return labelled as IRC 1341. This is schedule 3, line 12d.

Use the desktop program, the online version does not support this credit. If you are online, easy to switch.   

• If you are online user, and have not purchased your software, simply buy the desktop version and download your .tax file so you don't have to do your taxes again. Any trouble, call support, link below. Here are desktop options.
• If you have paid for your online taxes, call support and tell them the desktop program is required.

• Please use the following link for a customer support number.

Please see example and full details in my other post.

[juggejin51]

Thanks for the reply. Much appreciated!

Can you please clarify what do you mean by "not a concern on the gross-up tax"?

If I don't do anything and only claim the repayment, the gross-up tax will show as withhold tax on my account. In this case, some portion of the gross-up tax will be refunded to me. I don't mind to have extra refund but would like to know if it is okay for me to keep. Or should I remove the gross-up tax portion on the amended return?

thanks.

[ThomasM125]

The gross up tax is the payroll tax and withholding that should have been done by the employer but was not. It is not taxable to you even though the employer paid it on your behalf, so you don't need to worry about it. 

[juggerj1]

Sorry, my situation is different.

My prior employer already paid the gross up tax amount ~12K and is shown as the withholding tax on my W2.

If I only claim the repayment amount, TurboTax will refund part of the gross-up tax to me because the withholding tax is too high after excluding the repayment amount.

My question is: is it okay for me to keep the refund amount from the gross-up tax portion?

If not, how do I remove the gross-up tax portion in Turbotax?

thanks.

[AmyC]

@juggerj1 Our apologies, we did not make it clear. The employer paid you the gross up and took on the responsibility of paying for the taxes. The taxes they paid for you, was their choice. They paid it. They did not make you pay it back. That is your consolation prize for this nightmare. The taxes paid by the employer are not your problem.  Enjoy the refund.

[juggerj2]

Got it. Much appreciated!

[JSM1981]

Amy,

This post was super helpful for me. I believe my situation is the same as the original poster but would like to confirm. 

I had relocation expenses and a bonus provided by an employer and everything was grossed up to cover the tax liability for tax year 2020,  I did not have to cover the taxes myself.  I left that employer before my contract was fulfilled so I had to repay $18,567 to the employer in 2021. I am now filling my 2022 taxes and if I read this post correctly, I can deduct the $18,567 from my taxable income on my 2020 taxes to recalculate my tax liability in 2020. The difference between that newly calculated tax liability and the tax liability that was on my summited 2020 taxes is now my credit. 

My question is:

1) Do I amend my 2020 taxes or do I just claim the credit on my 2021 taxes?

2) Is everything I stated above correct?

3) All I have for a  paper trail is a signed settlement letter from my previous employer noting I owe them $18,567 and a cleared check. Is that enough should i be audited?

Thank you so much!

Jordan

Jordan  

[AmyC]

1. Claim the credit on 2021

2. Yes, recalculate 2020 subtracting the income to determine the difference in tax liability. That difference becomes your IRC 1351 credit.

3. Paper trail is all you need

@JSM1981 Great job!

[juggerj21]

Am I supposed to adjust the repayment for state tax return as well?

If so, may I ask how to handle this for the state tax return? I am using Turbo tax for State PA.

thanks.

[JSM1981]

I should have also asked about this. I need to go back and check but I assume I overpaid on my state and local taxes just like I did on my federal. Is it acceptable to send a amended return to try to get payment or credit back from state or local?

[AmyC]

Some states allow the repayment. You can reply with the state here or  contact the Department of Revenue.

@juggerj21

@JSM1981