Tax refund from sign on bonus repayment

[zmd20]

Could anyone help me on this issue: I received a $50,000 sign-on bonus when I started my job in 2022. However, I changed jobs in early 2024. In my last paycheck, I received a retroactive adjustment payment of approximately $8,000, while $10,000 was deducted as a repayment of the sign-on bonus. The W-2 I received for 2024 includes the total income as the sum of my regular earnings, the retroactive adjustment payment, and the sign-on bonus repayment. However, I had already paid taxes on the full $50,000 bonus in 2022. Am I eligible to reclaim a tax refund for the portion of the sign-on bonus I repaid?

[MaryK4]

Yes, you can - but you will have to calculate the amount of the credit.

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. 

See Repayment over $3,000.

[zmd20]

Thank you so much! Another question is what does the retroactive adjustment payment means here? That shows together with the regular earning and sign on bonus to make a total YTD taxable income.

[AmyC]

Retroactive adjustment allows you to deduct this year for the difference when it was earned. Following the IRS example, you will:

1. write down your total tax liability in 2022.
2. redo your 2022 return subtracting out the repaid income
3. write down your new tax liability
4. subtract the two liabilities to determine the credit allowed on your 2024 tax return. This will be marked IRC 1341, (Internal Revenue Code and section).

To enter it, follow the steps in What is a claim of right repayment?