Bonus Repayment

Forum|Forum|2 years ago
May 30, 2024
2 replies
15 views

I had a bonus of $5K that was paid to me in 2023. I had to repay it because I left the company. I had to pay back the gross amount of $5K in 2024. My old company just put that against my gross wages in 2024 and did not do anything with taxes that were paid. I think that it will be fine for federal and local wages because I can just get a refund this year, however, I am not sure how to handle social security and medicare. Can you please tell me the correct way to approach that?

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Mike9241

Level 15

your options for reporting the repayment in a year different from the year received if it was more than $3,000 then in the year of repayment you can:
a) take as a deduction on schedule A line 16 denote as IRC 1341 repayment OR
b) recompute the taxes in the year you received the payment by excluding it. the decrease in taxes is taken as a credit on schedule 3 line 13b on the return for the year repaid

as to social security and medicare taxes that were not corrected you have to file IRS form 843. you'll need a conforming letter from your employer that it will not claim a credit for you share of those taxes

https://www.irs.gov/site-index-search?search=843&field_pup_historical_1=1&field_pup_historical=1

Mike9241

Opus 17

Level 15

You make these adjustments in 2024, the year the repayment was made. Very briefly (there are other old posts with detailed instructions, try a google search)

1. For the federal taxes, you can either:

a. claim a special itemized deduction for the repayment amount, or

b. claim an IRC 1341 Claim of Right tax credit.

The deduction is included in all versions of turbotax, but you won't receive a tax benefit unless you already itemize your deductions. The claim of right credit requires making a manual adjustment using Turbotax (2024) installed on your own computer from a CD or download, it can't be done in turbotax online. You can claim a credit for the amount that your 2023 taxes would be been reduced if the bonus was not included in your wages. You must calculate the credit amount yourself, and manually enter it on your 2024 tax return. You can use either the deduction method or the claim of right method, but not both, and you can use whichever method saves you more money.

2. for state income taxes, you must check your state for a similar claim of right procedure. Since every state is different, we can't tell you without more information, but you have several months to research it.

3. For social security and medicare, you must request a refund yourself using form 843. This is not included in turbotax and not part of your regular tax return, you will fill it out and file separately. You will need to include documentation (proof that you paid social security and medicare taxes on the wages and proof of repayment) along with a letter from the employer where they state that they will not adjust or refund your SS and medicare taxes for you.