tax return associated with sign up bonus repayment

[Shih Lin]

Hi tax expert,

I have a question about income tax repayment and wonder if you could help answer. 

Here is the thing: I received a 50000 sign up bonus when I joined a company in Oct 2020. I paid back a quarter of it, 12500, when I left this company in Feb 2022. After paying back this money, I got a repayment receipt. I contacted them several times to get an adjusted W2 form but was not able to get one unfortunately. I want to fill the tax return associated with this bonus repayment when filling 2023 tax. Is this feasible without an adjusted W-2? If so, could you let me know how to do that? Thanks!

[Mike9241 · Accepted solution]

If the $12,500 was not reduced for your share of the Social Security and Medicare taxes taken out on that portion then the Company will not issue a corrected w-2  The taxable wage portion is not reduced if the repayment is in a subsequent year. Therefore, the W-2 is correct for 2020 and 2022. (2022 since they paid your salary rather than deducting the 412500 from it) 

The claim of right credit (IRC 1341) will take care of the federal income tax.  Don't know if you paid state income taxes. If you did since I don't know the tax laws of all the states, you will need to do some research to see how to get back the state taxes you paid on the $12,500. To get a refund of Social Security and Medicare taxes, you will need to file Form 843 with the IRS. This is separate from your 1040 and is not done by Turbotax. You will likely need a letter from the company confirming that they will not be issuing a refund of your Social Security or Medicare taxes.

*****************************

in the year of repayment, 2022, you can either

1) take as a deduction on Schedule A line 16 and denote it as IRC 1341 repayment OR
2) recompute the taxes in the year you received the bonus by reducing the taxable wages, box 1, of the w-2 by $12,500.  The decrease in taxes is taken as a credit on Schedule 3 line 13d. There are no specific documents you need to attach for this but do keep your computation workpapers  (like an amended 1040 for 2020) should the IRS inquire

[Hal_Al]

Q. I want to fill the tax return associated with this bonus repayment when filling 2023 tax. Is this feasible??

A. No.  You cannot account for this on your 2023 tax return.  As @Mike9241 indicated, you will need to file an amended 2022 tax return, since 2022 is the actual year you made the repayment. 

[Shih Lin]

Thank you for this detailed answer@Mike9241 !

Just a follow up. I am located in California. By any chance you are also familiar with handling  this repayment with California state tax?

Thanks again!

[Mike9241]

sorry no. but perhaps someone else will provide that info and if worse comes to worse call the California Department of Revenue

[Hal_Al]

Most states have a line item deduction for repayment of previously taxed income. In others, it may come under misc. deductions. If CA allows it, it will most likely come up in the TurboTax state interview.