Repayment of signing bonus in subsequent year

[KristinaK]

You can follow the steps in this Help Article to claim the repayment of wages on the tax return. 

@akumarz3 

[user82936234]

Hi @Opus 17,

Thanks for all your help on this thread. I am finally getting around to filing my 2020 tax return to claim back the over payment in taxes in TY2018. 

I calculated the overpayment as I previously posted earlier in the thread. In the desktop version of Turbotax, it was easy enough to add the credit in. You click on Forms, then click on 1040/1040SR Wks and scroll to the bottom of that form. There is a section called "Other Credits and Payments Smart Worksheet". On line E "Claim of right, IRC 1341 credit for repayments of prior year income", I added my credit amount. Then just exit back to the form and I can see that my refund now includes that amount. Great!

Now, I would like to understand how to do the same for my state (CA) tax returns. I have already research and it seems I can do this. Here is what I found from the ftb.ca.gov website:

"If you deducted the repayment on your federal tax return and are taking a credit for California, enter the amount of the federal deduction on line 16, column B. To help you determine whether to take a credit or deduction, see the Repayment section of federal Publication 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations. If you choose to take the credit instead of the deduction for California, add the credit amount on line 78, the total payment line, of the Form 540. To the left of the total, write “IRC 1341” and the amount of the credit."

So I tried to do this in TurboTax, I click on Forms, then scroll down to the California forms section. I found the form 540 form. And I can see line 78 with the current amount listed. However, I cannot edit this amount, nor can I write in "IRC 1341" next to it, as there is no field/form to do that. 

Am I missing something? Is it not possible to do this in TurboTax? You mentioned I should be able to edit the form for this, so wanted to check. If this is not possible, what is the solution? Thanks!

[guitarkenn]

@Opus 17 this thread is so helpful thank you!

[Mfc123]

This is actually affecting me this year. I received a bonus in 2022 and I am being asked to repay the full gross amount in 2023. What do I need to consider in 2022 taxes since I did not effectively receive the amount that was withheld for federal taxes? 

[guitarkenn]

When I quit my last job in early 2022, my employer made me repay the sign-on bonus they paid me in 2021. I told my employer to make a pre-tax deduction from my remaining pay in the amount of the sign-on bonus. I suggest you ask your employer if you can do the same, unless you have already quit or there is not enough time before you quit for you to pay back your bonus with pre-tax dollars.

Here is how it worked for me. My signing bonus was $5k, paid to me in 2021. At my request, my employer deducted $5k pre-tax from my salary in 2022 to pay back the sign-on bonus. In effect, my gross pay was increased by $5k in 2021 and decreased by $5k in 2022, so there is no change in the total amount I was paid during my employment, and no need to do anything fancy when I file my 2021 and 2022 taxes - I just put in the amounts from the W2 forms my former employer gave me for 2021 and 2022. A possible downside if you follow this approach would be if your bonus bumps you into a higher tax bracket in 2022 than you are in in 2023. 

Another approach is that you could write your employer a check for the net sign-on bonus amount you received after taxes, and your employer would back out the amount of the taxes from your remaining paychecks, but the first approach is probably easier for your employer. 

I didn't figure this out on my own; I read this thread, specifically the post by user @Opus 17 on page 5 with a timestamp of ‎June 24, 2020 10:17 PM. 

[ErnieS0]

If you repay your 2022 bonus in 2023, your employer will give you a corrected 2022 W-2.

Your Box 1 taxable wages will not change because you received your bonus in 2022. You’ll deduct that amount on your 2023 tax return. However, your employer will refund any Social Security and Medicare withholding from repayment.

If you are repaying $3,000 or less, you cannot claim a tax credit or deduction on your 2023 return for the payment. 

If you are repaying more than $3,000 you can either deduct the amount or claim a tax credit based on the amount of tax you would have paid without the bonus.

The tax credit computation is more complicated, but you usually save more money. Each situation is different so try it both ways next year.

Also, check out @guitarkenn's awesome advice!

See Repayments

@Mfc123

[Msrain]

What about in the case where I received a bonus in 2022, and repaid the net amount in 2022? The w2c shows updated boxes 3-6. I understand that box 2 might have to stay the same. However, box 1 still shows my gross salary including the bonus, even though it was paid back within the same calendar year. Should hr updated box 1 to show my salary without the bonus, since I ended the year without it? 

[DaveF1006]

No, you would still need to report the repayment.  Do not correct this on your W2 as this will raise a red flag with the IRS.. It is unfortunate your employer did not back the bonus amount out when the corrected W2 was issued. 

You have several options.  I would read guitarkenn advice given above on a possible solution, which may be the easiest solution to follow.

Another solution would be to have your employer issue another corrected W2 to report  the bonus payment excluded.

If you itemize deductions, you may deduct the amount of repayment as an itemized deduction or take a credit. As ErnieS0 mentions, taking the credit is a more complicated process but may be worth it as it may save more money.  If interested, please follow the steps given in this Turbo Tax article and pay attention to the section in the section entitled taking the credit in Turbo Tax CD/download. 

This link will explain how to install the download and how to transfer from Turbo Tax online to your installed Trubo Tax product if you are interested in taking the credit.

@Msrain 

[Msrain]

I'm working on getting hr to do another w2c with the repayment taken into account, but is this not the best route? Are you saying that having them do another corrected w2 will red flag my return? 

[GeorgeM777]

Yes, because your employer appears now to be issuing you a corrected W-2.  Issuing a W-2c by itself should not raise any red flags.  The Form W-2c exists so that taxpayers, such as yourself, can accurately report their income.  The prior post by @DaveF1006 seems to be suggesting that if you were to independently adjust/correct your existing W-2, such adjustment/correction could result in a mismatch with your wage information already on file with the IRS.  Therefore, we always recommend that taxpayers report their W-2 information as is, even if the W-2 is not accurate, and then work to obtain a corrected W-2 from their employer or resort to the other methods described herein.  

Because it appears you have already obtained assurances from your employer that a W-2c will be issued, continue to pursue that course of action.  

@Msrain 

[Msrain]

If they do not reissue the corrected w2, and I have to file for the credit irc1341, do I use the net amount I paid back for the calculations, or the gross? Again, they only had me pay back the net amount since I was paying it back in the same year. Thank you so much for all the advice! 

[Msrain]

To clarify:

Total bonus issued in 2022: $10,660. 98

Take home :$7500

Paid back in 2022: $7500

Box 3&5 w2c amount reduced by: $10,660.98

Do I calculate using the full $10,660.98, or the $7500 for method 2 IRC 1341?

[LindaS5247]

Since you paid back the $7500 in the same year as you received it, 2022, then you only need to enter your Form W-2(Corrected) as it is shown. You do not need to file for credit under IRC 1341.

[Msrain]

The problem is, the w2c doesn't show the updated wages in box 1. They only updated boxes 3-6.  I think my old employer processed it as if I paid back the following year rather than the same year. My understanding is that, by paying back in the same year, I only had to pay back the net. The company was supposed to amend their 941 returns to recoup the remainder, and issue my w2 as if the bonus never happened. I'm still trying to get them to fix it. Wish me luck! 

[DianeW777]

If the repayment did occur in the same year you received the bonus as you state, then try to obtain the corrected W-2 as you indicate.  If you do not receive a corrected W-2, you should not adjust the box 1 wages. Instead see the instructions below to remove the income from your return.

If you cannot get a corrected W-2, then you can adjust the wages for the repayment in another way. Keep all the proof documentation showing both the receipt and repayment in the same tax year. 

Follow these steps to complete the action of removing this income from your return.

1. Scroll down the page to the last section titled: Less common Income and click show more;
2. Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
3. Scroll down to the last option titled Other reportable income and select start or edit;
4. When it asks, "Any other reportable income?" say yes then you will make one entry
5. Enter this description: Bonus Repayment excludable income and enter amount as a Negative (-7,500) number

DO NOT USE IRC 1341 if the repayment occurs in same tax year that you received the money.

If you do not receive the reimbursement of social security and medicare taxes from your employer, then you can use Form 843 as indicated by Opus17, earlier in this thread.

@Msrain