Repayment of bonus in same year paid

[Percygoodstaffy]

I received a start bonus in March 2024, it was $25k, I netted ~$17.6k.  I had to repay the gross amount when I resigned in late July 2024, which I did promptly. 

My previous employer issued a W2 including the bonus in my earnings.  I reached out indicating it was incorrect earnings as I repaid it a few months later.  They’re refusing to issue me a corrected W2 and told me to show repayment and my employment contact to request an income reduction from the IRS.  

Are they not obliged to correctly reflect my earnings in the year? Especially given it all transpired in the same year and didn’t bleed across different tax years.

How do I rectify this to receive credit for my overpayment as I returned the full amount, having now paid taxes on something I never actually kept as income? 

[KrisD15]

The easiest solution would have been if the employer corrected the W-2. 

According to the IRS, they should have done that. 

In TurboTax, you can go to 

Deductions & Credits

Other Deductible Expenses

Continue through this section and enter it as "Claim of right repayment over $3,000"

This is really for when the repayment is made the following year, since, as I say, when done the same year the employer is supposed to issue a corrected W-2C.

There may also be an issue if Social Security and Medicare tax was withheld and paid on the inflated wages.

This will put the repayment on Schedule A line 16, so it's only advantageous if you itemize deductions, but it will lower your taxable income. 

Your other option would be to file a complaint against the former employer with the IRS.

You might also need to file Form 843 to get the excess FICA tax refunded. 

[Percygoodstaffy]

Thank you very much for the reply.  I feel less insane that I expected my true actual income from them in 2024 be reflected on the W2.

After they said they don’t issue corrected W2s, I did file a complaint and let them know as much.  They then stated the original W2 is correct even if I repaid the bonus.  It’s incredibly bizarre.  So I am sure they’ll ignore the IRS letter requesting a corrected W2.

By itemizing as you suggest, will it ultimately yield the same result if they had just corrected my warning in boxes 1,3, and 5?  My FICA would have maxed regardless, so I  not concerned there, though I could be not appreciating something.

 Thank you again, really appreciate it! 

[KrisD15]

It will be subtracted from your income on line 12 of your 1040. 

If you would have itemize deductions regardless, then yes, it is the same as subtracting it out of Box 1 of your W-2.

If, however you would have taken the Standard Deduction, the deduction of the repayment might not be fully realized. 

Example, you file Single, so your Standard Deduction is  14,600.

If you have 14,600 in itemized deductions before the repayment, yes, all the repayment is treated as if you are subtracting it from your wages. 

If you only have 10,000 in itemized deductions, 4,600 of the repayment is lost because you could have taken the 14,600 standard deduction if you were not forced to itemize. 

[Percygoodstaffy]

Incredibly helpful, thank you so very much!!