Bonus Clawback Tax Adjustment

[marcuscato]

Hello,

• I joined a company in July 2020 and got a sign-on bonus, at the time of joining.
• I left the company in March 2021, before a year was up. Upon my departure, as part of the sign-on bonus agreement, I was asked by the company to pay back part of the sign-on bonus.
• I repaid the bonus clawback in Jun 2021.
• I have already filed my taxes for year 2020, but haven't gotten the refund yet because of IRS delays

How can I reclaim the difference in the tax I paid to IRS (roughly $5800) for the bonus. I can only think of two options:

1) File for an adjustment for my tax returns for 2020. But I haven't received a W2 adjustment from the company and not sure I will get one. Is this filed before I get my refund for 2020 or after?

2) File an adjustment when I do the taxes for year 2021, in 2022. I have heard of section 1341 credit. Is this relevant here?

My questions are:

1) What is your advice on which option I should pursue? Are there other options you recommend?

2) Will Turbo Tax  help with filing of section 1341 credit? If so, what document do I need from the company?

Thanks in advance!

[Bsch4477]

See here. 

https://ttlc.intuit.com/community/taxes/discussion/claim-of-right-with-standard-deduction/00/1051930...

[Mike9241]

since the payback occurred in 2021 that's the year for reporting it if at all. the repayment must be more than $3,000 if less no deduction and no tax credit otherwise, 

in 2021 you can take as a deduction on schedule A line 16 denote as IRC 1341 repayment

OR
recompute the taxes in the year you received the payment by excluding the amount repaid.
the decrease in taxes is taken as a credit on schedule 3 line 12d denote as IRC 1341 on the 2021 return

nothing has to be submitted with the 2021 return as proof but the IRS could always ask for documentation.  therefore save a complete pdf copy of the return both be before and after 

Turbotax will not help with recomputing the 2020 taxes. you'll have to open the return noting what the taxes are and then reduce wages by the amount repaid and see what the revised taxes are. the reduction is the credit to be taken in 2021. 

generally, the credit is better but since tax calculations can be quite complicated, you'll have to try both options to see which is better.

[marcuscato]

Claiming a credit under IRC 1341 can be done through Turbo Tax online? Or does it need a Desktop version?

[marcuscato]

Hi @Mike9241 I got an email from my company that they are processing a W2C for me. The sign on bonus was granted in 2020, I made the repayment in 2021. Is a W2C valid/relevant here? And if so, can I just file for an amendment for year 2020 via Turbo Tax when I receive the W2C? I am still waiting on my 2020 refund - IRS has accepted my return. Pls advise.