moving costs + gross up. your employer paid costs that it wouldn't have paid if it had known you wouldn't live up to the relocation agreement so you owe the moving costs it paid. It also had to gross up for federal and state income taxes and pay them to the tax authorities. These income taxes are recovered from your gross repayment. Assuming the repayment is more than $3000 (IRC 1341). You go back to the year that the moving costs + gross ups were included in your w-2. you reduce the wages on the w-2 by the gross amount. This will result in a reduction in your tax liability but you do not file an amended return. Instead, you take credit on the return in the year of repayment for the reduction in income taxes. if there were state income taxes involved state law may follow the IRS. You also have the option of taking the repayment as an itemized deduction on schedule A but usually the credit is more advantageous. in effect, the employer recovers the gross-ups from you and you recover them from the tax authorities.
for federal purposes you claim the credit on Schedule 3 line 13d
you will receive a corrected w-2 for the year you were reimbursed for moving expenses. the only items that would might change are social security wages and taxes and medicare wages and taxes. you do not file an amended return to report these changes.
fica and medicare. if these were included in your gross up the employer has two ways to handle these.
1) you reimburse the employer for these then the employer reimburses you because it gets back these taxes from the IRS by filing a form 941-X by reducing the fica and medicare wages reported
2) you don't reimburse the employer in which case the employer files the same amended 941-X but keeps your share of these taxes.
if the employer makes you repay the fica and medicare but won't reimburse you see PUB 17 page 69 amount what to do so you can file form 843
for more info on repayments see IRS PUB 17 page 69
