Question regarding returning sign-on bonus from different year.

[kuma_tw]

Hi all,

I know this might be a redundant topic that people might have discussed on the forum, but I didn't see a near similar case so I'd like to reach out and ask for help.

I started a new job back in Nov. 2022 and had received a sign-on bonus package. There are 2 parts of the sign-on bonus, first part would be the actual sign-on bonus, which is around $20,000 USD, and second portion would be a relocation reimbursement, which in total is around $13,000 USD. The sign-on packages were given out at different time, due to part of it was related to reimbursement and I came at a very late time in the year. so the receive timeline looks like this.

2022/11 -> first package of the bonus, around $20,000 pre-tax.
2023/09 -> second package of the bonus, around $12,000 pre-tax.

Fast forward to July of 2024, when I left the company, they asked me to repay full amount ($32,000) of the sign-on bonus which I paid back in check.

Now the company said they can't issue me a W2-C form for the past years (they didn't mentioned if they can do the W2-C for year 2024), and I'm not sure what to do to get my tax return.

Since I left in 2024 July, should I ask the company to deduct the repaid sign-on bonus from my 2024 paychecks and issue a W2-C for 2024 so it can be deducted this year? or is there anything else I need to ask the company to do so I can amend tax return for 2023 and 2022? or do I just simply needs to file a separate form for 2024 tax return and get return from there?

I'm not familiar with all these stuff and still learning, would appreciate all the helps,

thanks,

[Opus 17]

The 2022 W-2 can't be changed.  You were paid what you were paid and the withholding was what it was.

Since you still worked for the company when making the repayment in 2024, it would be extremely useful if the company would "net out" your salary in box 1, box 3 and box 5, and show the correct social security and medicare tax in box 4 and 6.  This might require giving you a refund check for the difference in taxes.  They might or might not be able to correct the box 1 federal and box 16 state income tax withholding, but it is not really necessary since you would get that back easily on your tax return.

If they won't net your W-2, then I would expect the W-2 to show the total from your pay stubs ignoring the repayment (your total wages, taxes withheld, and 401k and other benefits shown in box 10 or box 12).  In that case, you can obtain a refund of the taxes from the repaid funds on your state and federal tax returns.  I'm not going to list the procedure in detail, because it would be easier if the company will net out your W-2, so you should ask.  You can post back here and I or someone else can explain the correct procedures to follow.  To obtain a refund of the excess social security and medicare tax, you will have to file a separate form with the IRS, and it would be helpful in that case to have a letter from the employer acknowledging that you did repay wages, and stating the the company will not be processing a refund of social security and medicare taxes.

So I;d like to you ask about netting the W-2, and if they won't do that, ask for such a letter.  Then come back here when you know more. 

[kuma_tw]

Hi Opus, 

Thank you for the explaination, and I'ved reached out to my ex-employer for the neting out the repayment. Unfortunately it takes them 3 weeks to say no and say they won't do anything(that's why i was slow in response).

If you can let me know or point me to a direction on how to get my tax returned for the repayment, that' will be highly appreciated. 

I'm asking if they can issue me a formal letter for acknowledging now, but they are hopelessly useless when it come to being helpful. So incase if they decline to issue me an acknowledgement for repayment, what other document an i use to prove that I've send my payment back?

again, thank for the help, the whole process and working back and forth with my ex-employeer is really exhausting. 

[Opus 17]

@kuma_tw 

This is known as a Claim of Right, under IRC 1341.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/claim-right-repayment/L0aW5v3Tp...

Essentially, you were paid a salary in the past that you paid taxes on, that you believed at the time you had a right to the money. If the amount you paid back is less than $3000 there is no tax relief.  If the amount is more than $3000, you can use the Claim of Right procedure.

Federal tax return

You have two options.  Instructions are linked above.

1. Take a tax deduction for the amount you repaid.  

2. Claim a tax credit for the amount of income tax you overpaid in the previous year.  You have to figure the amount of the credit yourself.  Look at the year you got the bonus, and figure your taxes with the bonus, and figure them again as if you did not get the bonus.  That is the amount of credit you can claim in the year of repayment.  To claim the credit, you must use Turbotax Desktop version installed on your own Mac or PC from a download, you can't claim the credit online.

Two notes: If you already itemize your deductions, and if your tax situation is very similar to the year you were paid the bonus, then the simple deduction will come out about the same as the credit, and is easier to claim, and can be done with Turbotax online.  You are allowed to use whichever method results in the largest benefit, so you may want to figure it out both ways.

Also, you can only use the tax credit method if you believed at the time you got the bonus that you had an unrestricted right to that income.  If you knew when you accepted the bonus that you did not have a right to it, you can only use the deduction method. (For example, if you were planning all along to leave the company before you worked there long enough to get past the repayment requirement, then you did not have an unrestricted right to the bonus.)

State income taxes

Look on your state tax return instructions for how to make a claim of right credit.  Every state is different.  When you get to the specific process of filing your return, you can try calling customer support or posting here to ask a state expert if you can't find it.  

Social security and Medicare tax

You can claim a refund of social security and medicare using form 843.  This form is not included in Turbotax and is not filed with your tax return, you prepare and file it separately.  Include a statement and any documentation showing that the company refused to adjust your withholding or provide a refund, if you can get such a statement.  Instructions are here.

https://www.irs.gov/forms-pubs/about-form-843

[kuma_tw]

hi Opus, 

the paid back amount was more then 3k, so i'm definitley need to get it back. It looks like the tax deduction might be eariser for me so that i don't need to go through the past 2 year tax files and redo all the math, since my ex-employeer also messed up my taxes for the past two year as well... But I would like to make sure I have this correct. If I take the deduction for this year's tax return, that will also lower down my taxable income (and potential may result in different tax bracket), right?

Also a question for the state and fedral return. I've breifly look over the form and process, and pretty much it only says to fill out in one of the line in the tax return form. It did not specify to include certain proof or other statements. Do i need to include a copy of the proof letter (if my ex-employer is willing to give me) or print out email (that shows my ex-employer received my repayment, and is not willing to net out for this year) when i'm mailing in the tax return files? and if i were do to it electronically how do i attache the file? or I don't need to include anything and just wait til IRS/MA treasury to contact me (if they ever did) to provide the proof? 

thanks, alot , very much appreciated

[Opus 17]

@kuma_tw 

If you use the itemized deduction method on your federal (and possibly state) income tax returns, you don't send any other proof, but keep any documents related to the bonus and repayment for at least 3 years after you file (including emails that say we don't answer emails, or whatever they sent).

For social security on form 843, the instructions say to attach a statement from the employer, and copies of relevant W-2s, and if you can't get a statement from the employer, to attach your own statement detailing why you should get a refund, and that includes your description of efforts to get a statement from your employer and that they refused.  In addition to the W-2 showing amounts originally withheld, I would include copies of documents related to the repayment.  Not your entire employment contract probably, but at least a statement or receipt or demand letter from the employer and a copy of the canceled check.