Is my employer required to provide me a 2016 W2-C if in 2017 they had me repay all $22k+ of my short term disability wages for 2016 that were listed on the original W2?

[mxhogue]

I was in a car accident which resulted in me using short term disability in 2016. I was paid just over $22k in short term disability pay in 2016 and this was included on my 2016 W2 as income and taxed. In 2017 I settled my claim with the at fault party's insurance. My employer required me to repay all of my short term disability wages I received in 2016 using the settlement I got in 2017. Does my employer have to amend my 2016 W2 since I technically was not paid that as wages since I was forced to return those wages? 

[IsabellaG · Accepted solution]

No, the situation that you have is a complicated one referred to as a Claim of Right under IRC Section 1341. Your employer doesn't issue a W-2C, but you can claim your repayment.

It can be claimed as either an itemized (miscellaneous) deduction or as a credit if the amount repaid is more than $3000. The deduction is the simpler way to claim your repayment, but a credit might save you more money.

To claim the repayment as an itemized deduction, you would use TurboTax Online Deluxe or a higher version.

1. Click on Federal Taxes on the left side of your screen.
2. Click on Deductions and Credits.
3. Select All Tax Breaks, and scroll down to Other Deductible Expenses.
4. On Did you have any of these less common expenses? say Yes.
5. If your repayment was less than $3000, enter the amount and description on the screen Tell us about your less common expenses
6. Continue to the screen Did you have any of these other deductions? If your repayment was more than $3000, answer yes.
7.  Enter the amount on the next screen.

If you decide to claim your repayment of over $3000 as a credit, follow the information starting on page 33 of IRS Publication 525 Taxable and Nontaxable Income under Repayments. This requires a special computation, and you would need to use a Desktop version of TurboTax and enter your credit using the Forms mode.

[mxhogue]

Thank you! Am I only able to claim the repayment of wages that I made to my employer or can I also claim the medical repayment to them as well? I repaid them just over $43k in total; $22k of which was for my short term disability wages they paid me in 2016. The rest of the repayment was for medical benefits I used.

[IsabellaG]

You wouldn't claim them for this if you didn't report the benefits as taxable income. As I said, this can get complicated, especially when computing the tax credit, which would be better for you.

[mxhogue]

Got it. Thank you. I did not claim the medical benefits as taxable income, but I had reported the disability wages as taxable income for 2016.