An employer asks me to repay the "Gross" sign-on bonus. I only receive the "Net" pay (they withhold tax), I'm wondering how I can get the withholding tax back?

[Mike9241]

doesn't seem exactly right since it should be gross pay less social security and medicare taxes. the employer gets them back from the iRS.

as to income tax withholding, say you got a $20K bonus on which there was $5K federal withholding ignoring social security and medicare your net was $15K   if the actual tax on the $20K was only $4K you would have gotten back $1K from the IRS. so now you have $16K 

under IRC 1341 if the repayment is more than $3K you can go back to the year you received the bonus and recalculate the tax without it. the decrease in tax  of $4K is taken as a tax credit in the year of repayment so you would get back an extra $4K  total you got $20K total you pay the employer $20K 

[mayflower1000]

Hi Mike9241,

Thanks for sharing your insights.  That's very helpful!

Just wondering, how do I get social security and medicare taxes back?  Can it be done when I file tax return in the year I repay, similar to getting the 4K back from the IRS as in your below example?

What is the IRS Publication covering this topic?

Thanks again!

Virginia

[Hal_Al]

 IRS Publication 525 says the following.

"Repaid wages subject to social security and Medicare taxes. If you had to repay an amount that you included in your wages or compensation in an earlier year on which social security, Medicare, or tier 1 RRTA taxes were paid, ask your employer to refund the excess amount to you. If the employer refuses to refund the taxes, ask for a statement indicating the amount of the overcollection to support your claim. File a claim for refund using Form 843.

[mayflower1000]

Thank you very much, Hal_AI!  Your info is super helpful 🙂

Virginia

[Opus 17]

If the amount is less than $3000, you don't, end of story.

If the amount is over $3000, you have 3 steps.

1. Federal claim of right.  You can claim a special deduction or tax credit for the repaid amount, this reduces your federal tax and offsets the prior federal withholding.  You can take either the deduction or credit, whichever is best for you.  If your tax situation is about the same year over year and you already itemize your deductions for other reasons, the two methods will be about the same.  If you want to take the credit, you need to figure the amount of the credit yourself, by going back to your tax return from the year you got the bonus and recalculating it without the bonus to see how much less your tax would have been if you had not received the repaid amount as income in the first place.  To enter the credit, you need to be using turbotax installed on your own computer so you can enter Forms mode and make the entry, you can't do direct forms entry in TT Online.

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

2. State claim of right.  You can probably reduce your state taxable through a claim of right, which will reduce your state taxes this year to offset the higher taxes in the prior year, but how to do this in your state and how to do it in Turbotax will depend on your state, you may need to do some research.  

3. Social Security and medicare tax.  To claim a refund of the social security and medicare withholding, you must file form 843 with the IRS. This form is not supported by Turbotax and is filed separately from your tax return.  You will also need a letter from the employer confirming that they will not be adjusting or refunding your social security and medicare withholding.

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