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Rehired after layoff. Severance was a taxed lump sum. Have to repay the "unused" weeks of severance, it is calculated on pretax sum. Can I get the taxes back when filing?

Employer provided this, which I believe is straight from the IRS site "Employee reporting of repayment. The wages paid in error in the prior year remain taxable to the employee for that year. This is because the employee received and had use of those funds during that year. The employee is not entitled to file an amended return (Form 1040X) to recover the income tax on these wages. Instead the employee may be entitled to a deduction (or credit in some cases) for the repaid wages on his or her income tax return for the year of repayment." I need help deciphering this!

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3 Replies
rjs
Level 15
Level 15

Rehired after layoff. Severance was a taxed lump sum. Have to repay the "unused" weeks of severance, it is calculated on pretax sum. Can I get the taxes back when filing?

In what year did you receive the severance pay?
In what year did you or will you repay it?
What is the exact amount that you have to repay?

 

Rehired after layoff. Severance was a taxed lump sum. Have to repay the "unused" weeks of severance, it is calculated on pretax sum. Can I get the taxes back when filing?

*Sorry, Edited dates, all are in 2021*

Received severance mid November 2021. Will need to repay this week, December 28th 2021. Repayment will be north of $30,000.

rjs
Level 15
Level 15

Rehired after layoff. Severance was a taxed lump sum. Have to repay the "unused" weeks of severance, it is calculated on pretax sum. Can I get the taxes back when filing?

The paragraph that your employer showed you does not apply to a repayment in the same year that you received the severance. Note that it refers to "wages paid in error in the prior year." You cannot claim a deduction or credit on your tax return when the repayment is in the same year. The employer should simply adjust your W-2 as if the unused severance had never been paid, and you should pay back only the net amount that you received. Your employer recovers the tax that was withheld by amending their payroll tax filing. This is a routine adjustment.


Obviously someone in the company you work for does not understand how this should be handled. You can ask them to consult their accountant or their payroll service. If they refuse to make the correction, you might have to ask a tax professional or a tax lawyer to contact them on your behalf.

 

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