Bonus Repayment Tax Credit

[BigBob0923]

I was paid a bonus of $8,000 in 2022. I left the company in 2023 and was asked to repay the amount of $7,388 ($5,628 net amount plus $1,760 of federal income tax paid). They were nice enough to send me a corrected W2. I'm trying to figured out how much of a credit to put in. The updated return is about $500 less when I put in the corrected W2 numbers into TT. Any help would be greatly appreciated. Thank you.

[KrisD15]

To clarify, the corrected W-2 shows your income less the repayment, so what credit are you referring to? 

[Mike9241]

that w-2 is incorrect if it removed the $8K from wages and the $1760 from withholding since the wages were paid in 2022 and the repayment was in 2023.

IRC section 1341 controls

what they were supposed to do is issue a corrected w-2 for 2022 only reducing Medicare and Fica wages by the $8K and those related taxes. what you really repaid was the $8.000 gross wages less $612  in Fica and Medicare taxes for a net of $7388.

what you are supposed to do to reclaim the income taxes you paid on that $8K is recompute your income taxes for 2022 reducing taxable wages by $8000. that reduces your 2022 income taxes by $x.  you claim the $X on your 2023 return. the decrease in taxes is taken as a credit on schedule 3 line 12d denote as IRC 1341

[BigBob0923]

I have an original w2 and I now have a w2c which shows the original values and the corrected values. 

[BigBob0923]

So are you saying the amount the repayment impacted my taxes, I claim as a credit next year?

[DianeW777]

Yes, that's what we are saying.  This assumes you pay tax on the money on your 2022 tax return, then the repayment occurs in 2023. However, if the repayment amount, after the corrected W2, is less than $3,000 in 2023 there will be nothing to report on your 2023 tax return.  The claim of right (IRC 1341) is explained below.

Claim of Right

• If you had to repay an amount that you included in your income in an earlier year, because at the time you thought you had an unrestricted right to it, you may be able to reduce your income by the amount repaid in the current tax year if the amount you repaid is more than $3,000, or you may take a credit against your tax for the year repaid, whichever results in the least tax. 
  • IRC 1341
  • Income Reduction or Credit will be your choice.

Be sure to use the corrected figures on your 2022 tax return from your W-2 and W-2c.