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Level 7

Relocation Lump Sum Repayment

Hi! I received a lump sum $10,000 for relocation from my employer. After taxes was taken out I received $7,035. Due to unforeseen circumstances I had to leave the company before my 1 year.

I am being asked to repay the $7,035 I received. What’s the implication of the $2,965 paid in taxes? Will I end up owing more taxes this year? Or will I get a larger refund due to the higher taxes already withheld?

Thank you in advance!
1 Best answer

Accepted Solutions
Level 18 rjs
Level 18

Relocation Lump Sum Repayment


@numcrunch wrote:
Is there a way for me to confirm my employer filled out my W-2 correctly?

You should do both of the following.

 

1. Discuss it in detail with the payroll department. I strongly recommend doing this now, even before you make the repayment, to make sure you have a clear agreement on how it's going to be handled. Put your understanding in writing and send them a copy (or ask them to put it in writing). It's much better to take action in advance to make sure that the W-2 will be correct, than to find out after you get the W-2 that it's wrong and have to go through the hassle of trying to get it corrected (especially if you won't be there in January when the W-2s are sent out).

 

2. Crunch the numbers, numcrunch 😊. Keep track of the gross pay and federal income tax withheld on your pay stubs, and compare the final amounts to the W-2. Make sure the $10,000 gets backed out of the year-to-date gross, and that the $2,965 does not get backed out of the tax withheld.

5 Replies
Level 18 rjs
Level 18

Relocation Lump Sum Repayment

If you are repaying the amount in the same year that you received it, the $10,000 gross should not be included in the wages in box 1 of your W-2 for the year, but the $2,965 tax that was withheld should be included in the federal tax withheld in box 2 on your W-2. Thus, if your employer fills out the W-2 correctly, you will not be taxed on the money you repaid, and the extra $2,965 of withholding will be applied to your tax and increase your refund.

Level 7

Relocation Lump Sum Repayment

Thank you for your speedy response!

I will be repaying the amount in the same year I received it. Is there a way for me to confirm my employer filled out my W-2 correctly?
Level 18 rjs
Level 18

Relocation Lump Sum Repayment


@numcrunch wrote:
Is there a way for me to confirm my employer filled out my W-2 correctly?

You should do both of the following.

 

1. Discuss it in detail with the payroll department. I strongly recommend doing this now, even before you make the repayment, to make sure you have a clear agreement on how it's going to be handled. Put your understanding in writing and send them a copy (or ask them to put it in writing). It's much better to take action in advance to make sure that the W-2 will be correct, than to find out after you get the W-2 that it's wrong and have to go through the hassle of trying to get it corrected (especially if you won't be there in January when the W-2s are sent out).

 

2. Crunch the numbers, numcrunch 😊. Keep track of the gross pay and federal income tax withheld on your pay stubs, and compare the final amounts to the W-2. Make sure the $10,000 gets backed out of the year-to-date gross, and that the $2,965 does not get backed out of the tax withheld.

Level 7

Relocation Lump Sum Repayment

Thank you for your advice! I really appreciate the help!
Level 18 rjs
Level 18

Relocation Lump Sum Repayment

IMPORTANT CORRECTION


Thinking about this some more, I realize that I got it wrong. The company paid out $10,000, $7035 to you and $2,965 to the government, and they should get their full $10,000 back. If they're only asking you to pay back $7,035, they must be making an adjustment in their payroll tax payments so that they get the $2,965 of withheld tax back from the government. Then it's as if they never paid the $10,000 in the first place. In that case, your W-2 should be the same as if they never paid the $10,000 and they never withheld the $2,965. So the $2,965 is not included in the withholding on your W-2 (since the government doesn't have it), and you don't get credit for it on your tax return. But you and the company both come out even. You don't have any taxable income on your W-2 that you didn't actually receive, and you don't get credit for any tax that was not actually withheld. Your refund will be the same as if you never got the relocation payment. You don't owe any additional tax, and you don't get a larger refund.


Also, I've been talking about this as if the entire $2,965 is federal tax. But maybe some of it is state tax. ($2,965 is kind of high for just federal withholding on $10,000.) If so, it doesn't really change anything. The basic idea is the same. It just means that there are two governments involved instead of only one.


Sorry about the confusion. Obviously this is a somewhat complicated situation. You might want to go over it with a local accountant to make sure it's all done right.


You should still discuss it with the payroll department, but what you're looking for is a little different from what I said before. You still want to make sure that the $10,000 gets backed out of your total gross pay for the year. You don't want to have to pay tax on that. But you should also expect that the extra $2,965 gets backed out of your total withholding. The final result is the same as if the company never paid the $10,000.