Paying back sign on bonus from 2021. How do I get taxes back?

[bubbybee1122]

Hi, 

in 2021 I received a bonus of $5,000 post taxes ($7900 pre-tax... which means they took about $2900 in taxes). I have to repay the pre-taxed $7900, but it was prorated and they took my PTO I had so I only owe $3360 now. Its now 2023, how would I get my taxes back I pay on this? Does them taking some of it from my PTO impact the taxes I get back?  Do I amend my taxes or file a right to claim? Would I get the $2900 back because thats what they took?

[DianeW777]

Yes. You can file the 'claim of right'. It is handled in the repayment year and you do NOT amend. You may have this again in 2023 if you still must repay $3,360.  It's important to pay at least $3,001 in the 2023 tax year to be able to use this on your tax return again.

If they used your PTO, that portion would be decided by whether you had an unrestricted right to receive that money.  It appears that's the case since they took that for repayment. Once you decide that, the following are the steps you are allowed to choose when entering this into your tax return.

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 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. 

Taking the Income Reduction in TurboTax

1. Login to your TurboTax account or open your tax return.
2. Click on Federal Taxes and then Deductions & Credits.
3. Locate the section Other Deductions and Credits (you may first need to select on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop.)
4. Click Start (or Revisit) beside Other Deductible Expenses.
5. A number of questions will appear on the upcoming screens. You are looking for the one that reads Claim of right repayment over $3,000. Click yes when you see this screen. (Be sure to ignore the similar question, repayments of $3,000 or less.)
6. Enter the amount of the repayment in the box Claim of right repayment over $3,000 and click Continue.

Taking the Credit in TurboTax

There are two components to taking the credit in TurboTax. The first part entails determining the amount of the tax that was overpaid in the year the income was actually received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line D Claim of Right, IRC 1341 credit for repayments of prior year income.
5.  Click on the Step-by-Step or Easy Step icon in the upper right corner to return to the interview mode and finish working on your tax return.

[bubbybee1122]

Does this impact the standard deduction (i filed single in 2021 so that was 12000, but now in 2023 I will be filing married $24,000) if I do the claim of right or credit?

[DianeW777]

No it does not impact the standard deduction for either year.  This is a direct reduction to income or a credit to your tax depending on what you choose as long as the repayment is more than $3,000.  Below that figure there is currently nothing you can do on the tax return.