Employer Reimbursed $8,866.91 in 2019. I'm Leaving the Company Before Filing 2019 Tax Return. What Would be the Best Course of Action to Take?

[bunnyteeth]

In 2019, my employer reimbursed $8,866.91 for my grad school. I'm leaving the company before the 1-year stay requirement is up so I have to pay back all $8,866.91 now in March 2020. The breakdown of the tuition is $5250 tax free, and $3616.91 taxable. The company already issued a W2 but I have not file my 2019 tax return yet. What would be the best course of action I should take? 

1. Ask the company to reissue a W2 since I'm paying all of the reimbursement back and have not file my tax return yet (not sure if it is possible)

2. File the 2019 tax return now, and file an amendment later (this process takes so long and I would have to pay more taxes so I'd prefer not doing this)

Please advise. Thank you!!!

[JamesG1 · Accepted solution]

(1) I doubt whether your employer will reissue a 2019 W-2 to correct a payment made in March of 2020.

(2) If you file your tax return now with a balance due, final payment is not required until April 15. 

However, I suspect you will be eligible for a right of claim credit or deduction on your 2020 Federal tax return.  If so, amending the 2019 tax return will not be required.

See whether this sounds like what you will be repaying in March of 2020.

IRS publication 525 pages 34 and 35 under Repayments.

See also this TurboTax help.

[bunnyteeth]

Thank you for the information. I really appreciate it. I think repayment over $3000 may be applicable. When I file my taxes in 2020, will TurboTax be able to determine which tax calculation method result in lower tax for me?

[AmyC]

No, for the repayment over $3,000 you have to manually calculate the difference in the tax return that was affected in order to do the comparison. Turbo Tax program stays within the current year.

As a  cheat, since it is for 2019:

1. add the income to your 2019 w2 before you file to determine your tax liability with the income
2. subtract the income back out before you file

make a note: 

1. of the tax liability if that income is added into your W2 in 2019
2. Note your actual tax liability for 2019
3. subtract to get the difference.
4. put this in your 2020 tax file with a big note that this is critical information!!!

That way one method is already done for you when you do your 2020 taxes.

Next year, pull that note out to complete your 2020 credit correctly.