I have charge backs at work say i get paid $200 I could be charged back $100 later that year . is that double taxed?

[Opus 17]

That depends on what your W-2 eventually says.  Can you explain your situation in more detail?

[wadewalker248]

its not on my w2 its on my pay stub. what I'm asking for ie: I get paid $200 pay taxes on that.  Say 6 months later I get charged back $100 of that $200, isn't that paying too much taxes on that? paid $200 worth of taxes, but in up only getting paid $100... over a year this can amount to a good deal of money.

[Opus 17]

But it still depends on why you are getting charged back and what your W-2 ultimately shows.

[wadewalker248]

I'm charged back for customer not paying for the full year service. I get paid up front for the whole year . if they cancel I pay back the balance.

[wadewalker248]

of my commission

[wadewalker248]

customer buys Jan $500 I get paid $100 pay taxes on that . 6 months later customer cancels June  owes $250 I have $50 taken out of that check in June ...

[Opus 17]

You're still not providing enough information.  Let me try some examples.

Let's say you have $30,000 in salary and commissions for the whole year with no chargebacks.  Your W-2 would show $30,000 in box 1 (wages), box 3 (social security wages) and box 5 (medicare wages).  Your box 2 withholding is whatever federal tax was withheld, your box 4 social security tax will be $1860 (6.2% of box 3) and your medicare tax will be $435 (1.45% of box 5).

(On your actual W-2, boxes 3 and 5 may be different from box 1 depending on whether you participate in a 401k or certain other benefits, don't worry about it for now.)

Now, let's say you have the same gross wages, but you had $5000 in chargebacks for canceled contracts.  You need to know, will your box 1 wages still show $30,000?  Or will it be adjusted to $25,000?  Will box 3 and 5 be adjusted as well?  Is box 4 still 6.2% of box 3, and is box 6 still 1.45% of box 5?

Generally speaking, if the chargebacks are in the same year as the wage payments, the employer should adjust box 1 of the W-2.  In that case you won't be double-taxed on your income tax, you will only pay tax on the net amount you earned.  If they don't adjust box 1, there is a procedure to claim a tax deduction, but it depends on the amount of the chargeback.  And I would also complain to the state labor board in your state that they are reporting your income wrong and causing you tax harm.

I'm not sure if boxes 3 and 5 should also be adjusted, that's more complicated and I would have to do some research.

But I really can't tell you if things are right or wrong until you look at your actual W-2 and compare it with your pay and chargebacks to see if boxes 1, 3, and 5 have been adjusted for the chargebacks or not.

[tammey]

Great explanation for chargebacks happening in the same year. My company deducts chargebacks from bonuses not base salary. An, every year I over pay taxes. But, let's say I sold a 36 month membership and in the 24th month it charges back. How should that be handled? Should I be amending that years taxes? Should my company amending that years or the previous years income/taxes? I feel they have found a loop hole to benefit their bottom line.

[Opus 17]

@tammey 

as with the previous person, who never really responded to me, I can’t really give you a detailed answer that covers your exact situation without knowing all the facts.

The first key principle is that in most cases, if you are a W-2 employee, your employer is required to report all of your income on your W-2 and withhold all the proper taxes, including bonuses. They are not allowed to pay the bonus separately and issue a 1099 for it. That strategy does indeed put you at a tax disadvantage but there is a way to fix it on your tax return.

Suppose you earned a $5000 bonus in 2019 and it was included on your W-2 and you paid tax on it.  Then suppose you also earned a $5000 bonus in 2020 but you had a $1000 charge-back so the company only paid you a $4000 bonus, and they added it to your W-2 and withheld all the proper taxes.  That doesn’t sound like you are at any disadvantage. You are paying taxes on the income that was actually paid to you during the tax year.  

On the other hand, if you earned the $5000 bonus in 2020 and the company paid you the $5000 gross and withheld all the taxes and included it in your W-2, and then demanded that you pay them back $1000 in cash out of pocket for the charge-back, that does put you at a significant disadvantage.  If the amount is less than $3000 per year, you can’t recover it on your tax return and you should really try to negotiate a different arrangement with the employer or look for a new employer. If the amount of the repayment is over $3000, there is a way to deduct it on your taxes but it is complicated, and it would certainly be easier if you could negotiate a new arrangement with your employer then to have to fiddle with your tax return in a complicated way every year that you have a charge-back.

[tammey]

Thanks for the explanation, at the end of 2020 they took back bonuses from as far back as 2017. On deal in particular it was sold for $53k and paid out $4250 that I paid federal taxes approx 1400. on in 2017.  But in this instance they also took back the same amount $1400. This is affecting my tax health somehow. Do you think I would benefit from contacting a tax attorney or a CPA to discuss further? 

[Opus 17]

@tammey 

If you were expecting a large bonus but you received a small bonus, and you paid income taxes on the small bonus, then you have paid the correct amount of tax. It doesn’t matter why the bonus was reduced.  If you believe that you paid tax on the large bonus that you did not receive, it might help you to meet with an accountant to review your situation.  

If you are dissatisfied with the bonus procedure, that is not anything that a CPA could fix for you. You would have to discuss that with your employer, or your state labor board or a labor attorney, and it would depend on the laws of your state and whether or not your position is covered by a separate contract.

[Cr125]

If I am paid 100% commissions and they decide to do charge backs let’s say starting August, can they go back to February and re look at all income and start from February to charge me back? From 7months ago 

[Opus 17]

@Cr125 

This is just an income tax forum.  Your question would depend on the contract you have with your employer and the labor laws of your state. You should only pay tax on the income you receive after adjustments, but we can’t tell you whether those adjustments are proper or allowed.