In September of 2017, I received a signing bonus from my new job. Since I did not stay for two years I had to pay back half of my bonus. I was able to fill out a FICA consent form which allowed me to avoid paying back the social security and Medicare taxes. I was also told that I would receive a form W-2C to reflect this.
My questions are as follows:
Is it possible to get the rest of the taxes back on my 2018 return? If it is, can I do this myself without an accountant's help? If I can do it myself using TurboTax, which version would I need and how would it be done?
Thank you in advance for any help!
You'll need to sign in or create an account to connect with an expert.
Since the box 1 taxable wages from 2017 won't change, and assuming they do not deduct it from your 2018 W-2, then you need to use one of the following procedures.
Simple procedure: take a special itemized deduction not subject to the 2% rule. But, you must itemize already to get the maximum benefit, and the standard deduction was raised by tax reform. This is listed at the very bottom of the deductions and credits page under "other uncommon deductions." (You will also recover less tax this way because the tax rates were lowered 2-3% at each bracket, so the deduction will save less than the tax paid previously, in most cases.)
Complex procedure: take a direct tax credit on your 2018 return in the amount that your tax was increased in 2017 due to this money. This is known as an IRC 1341 Claim of Right. I can't tell you where to put it on the tax return, because the forms are changing and the IRS has not released the final forms and instructions yet. You will need to use Turbotax installed on your own computer from a CD or download (and not the Online or Web version) because you will need to make a manual entry on the tax return. And Turbotax can't calculate the amount of the credit, you will need to do that on your own. If you have Turbotax 2017 installed on your computer, you could make a test version of your tax return with the lower amount in box 1 of your W-2, and compare your tax due on line 56 of form 1040 with the higher and lower incomes, the difference is the amount of the credit you claim in 2018.
However, the tricky thing about the section 1341 Claim of Right is that to take this credit, you must have had a reasonable expectation at the time you received the money, that you had an unrestricted right to the money. That means, if you knew you were probably planning to quit in less than 2 years, then you knew or should have known that you should not have accepted the bonus, and you did not have an unrestricted right to it. But if you legitimately believed you would fulfill the requirements of the bonus, and something unforeseen happened, then you can use the Claim of Right. (You will want to document this in case of audit.) If you did not have a reasonable belief to an unrestricted right to the bonus back when it was paid, you can only use the special itemized deduction, even if it does not allow you to recover all your taxes.
You should check back here after you get your W-2 at the end of January 2019, if you want more help on calculating the credit or how to enter it on your 2018 tax return.
Still have questions?
Questions are answered within a few hours on average.
Post a Question*Must create login to post
Ask questions and learn more about your taxes and finances.
rwhrampton
New Member
zmd20
Level 2
curtisrb15
New Member
thegoodreturn
Level 2
4582
New Member