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New Member

Repayment of signing bonus in subsequent year

Hi @Opus 17 thanks for all of your responses thus far. I received $3500 after tax as my sign on bonus and paid back $4594.53. When trying to do method 2 for the tax credit, the change in taxes was only $123, which seems extremely low (2.6% tax??). I’d expect it to be around $1000 since I paid back $1094.53 more than I received. Am I wrong in thinking this way?

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Level 15

Repayment of signing bonus in subsequent year


@MitchFabian wrote:

Hi @Opus 17 thanks for all of your responses thus far. I received $3500 after tax as my sign on bonus and paid back $4594.53. When trying to do method 2 for the tax credit, the change in taxes was only $123, which seems extremely low (2.6% tax??). I’d expect it to be around $1000 since I paid back $1094.53 more than I received. Am I wrong in thinking this way?


Why did you repay more than the bonus?  How did you figure the credit?

 

 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**
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New Member

Repayment of signing bonus in subsequent year

Hi,

 

I have been reading and rereading this threat for awhile and think I have it figured out minus one piece. I did the same thing as another person here: got a bonus in 2018 and repaid it in 2019. I received a W2C for 2018 with boxes 2-6 corrected, but not box 1 (as expected). I recalculated my 2018 taxes uses the W2C two ways: as the W2C looks (not manually subtracting from box 1) and by subtracting box 1. It is my understanding the latter of those values is my credit to be received on my 2019 taxes. However, when I read Pub 525, it calls out "repaid wages subject to social security and Medicare taxes" as a separate option and that I need the employer to refund that. If I use my W2C to calculate a credit for 1341, doesn't that include those taxes (boxes 3-6 are modified)? The IRS pub implies I just change box 1 and nothing else to get the credit, but then what good does the W2C do me?

 

Thank you!

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Level 1

Repayment of signing bonus in subsequent year

Opus_17 helped answer many of these questions for me, so I thought I would share where I can. 

 

The reason box 1 is empty is because you repaid the bonus in the following tax year. The corrected W-2C 2018 is only to represent what was changed in that tax year. If you repaid the bonus in tax year 2019, you will need to file the 1341 for 2019 tax year to claim the credit of overpaid taxes in 2018. Honestly, the whole W-2C just causes confusion and why you (and I), think we should amend the 2018 tax return to claim the refund. 

 

Anyway, that's why box 1 is empty, it's supposed to be, as you did receive that income in 2018. I believe the change in the other boxes, is because you may have filled out a FICA form and your employer would have calculated an amount to refund you. In my case, I had to repay $10k, but actually amount I repaid was around $9200, because I signed the FICA paperwork which allowed them to get the refund back on the medicare/Social security taxes, which I believe is what they passed back onto me (why I paid $9200 instead of $10k). So I guess the next step is I need to file the 1341 with my tax return for the year in which I paid back the bonus. 

 

It really is such a pain. Of course the IRS makes things difficult to get the money back. They could have easily created a field in the form to where you simply indicate a repayment amount and your employer could provide some tax document to prove it. I assume they just figure most won't bother and they keep the change. 

 

Good luck!

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New Member

Repayment of signing bonus in subsequent year

The box 1 stuff makes sense to me. I paid back a full 10k/10k and never had an option to partially pay back given social security and medicare. I have an email into their HR to see if they will refund me a portion of the repayment for that tax. At this point I probably need to just hire someone.

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Level 15

Repayment of signing bonus in subsequent year


@PWEB wrote:

Hi,

 

I have been reading and rereading this threat for awhile and think I have it figured out minus one piece. I did the same thing as another person here: got a bonus in 2018 and repaid it in 2019. I received a W2C for 2018 with boxes 2-6 corrected, but not box 1 (as expected). I recalculated my 2018 taxes uses the W2C two ways: as the W2C looks (not manually subtracting from box 1) and by subtracting box 1. It is my understanding the latter of those values is my credit to be received on my 2019 taxes. However, when I read Pub 525, it calls out "repaid wages subject to social security and Medicare taxes" as a separate option and that I need the employer to refund that. If I use my W2C to calculate a credit for 1341, doesn't that include those taxes (boxes 3-6 are modified)? The IRS pub implies I just change box 1 and nothing else to get the credit, but then what good does the W2C do me?

 

Thank you!


The IRS 1341 process only gives you credit for income taxes you paid, not employment taxes (social security and medicare).

 

In some cases, the employer won't adjust the FICA and medicare, either they don't know how, or they don't want to, or the repayment occurs in a tax year after your final pay check, which makes it nearly impossible to adjust.  If that happens, you can console yourself that you got a slightly higher social security credit than you deserve, which may increase you retirement benefit and eligibility for disability.  (Not much, true.)

 

If the employer issues a corrected W-2C with boxes 3-6 adjusted, then that adjustment should come back to you in some manner, either by a direct refund or as an adjustment to the amount you must repay, as @americanninja18 described. 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**
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Level 15

Repayment of signing bonus in subsequent year


@americanninja18 wrote:

 

It really is such a pain. Of course the IRS makes things difficult to get the money back. They could have easily created a field in the form to where you simply indicate a repayment amount and your employer could provide some tax document to prove it. I assume they just figure most won't bother and they keep the change. 

 


 

Of course, it is Congress that makes the tax laws, not the IRS.  And we haven't even really discussed the other rule about a "claim of right" credit.  To use the IRC 1341 "claim of right" credit method, you must have had a reasonable belief when you received the wages, that you had an unrestricted right to them.  If you knew or had reason to know your rights were not unrestricted, you can't use the credit method and are only allowed to use the itemized deduction method.  A claim to an unrestricted right is tricky in the case of a bonus that you knew had a service requirement.  Was that really unrestricted?  What if you signed a contract with a 2 year repayment clause but you secretly knew you were leaving early, perhaps planning to move for family reasons but you took the job and didn't tell the new employer.  Then you didn't have an unrestricted right -- you knew or should have known that you would have to pay it back.  If audited, you might lose the credit and have to recalculate your tax using the itemized deduction method, which may result in less or no money back to you. 

 

 

 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**
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New Member

Repayment of signing bonus in subsequent year

Hi All, 

I am going through this right now (have not yet left my current job).  What FICA consent form did you fill out which helped you not have to pay back the SS & Medicare portions? 

Thanks in advance!

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New Member

Repayment of signing bonus in subsequent year

@Opus 17thank you for your responses here, they are extremely helpful! What if  i) the amount I had to repay back in a  subsequent year was less than $3,000, ii) received an amended w2 (w-2c) but box 1 was empty, and  iii) my 2019 returns, which is the year I repaid the bonus, will use the standard deduction as I have no itemized deduction (other than this potential repayment)? Am I out of luck? If so that's kind of BS! How is that fair? 

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Returning Member

Repayment of signing bonus in subsequent year

@Opus 17 I'm in the same position as the original poster, received bonus in September 2019 and left March 2020. This is my tax professional's advice:

"1. Repay the net bonus + Federal Income Tax Withheld on bonus + 
State Income Tax Withheld on bonus. 
2. Request former employer to send a W2C – Corrected W2 for the year 
in which the employer paid the bonus; the W2C changes Box 3 (Social Security) and Box 
5 (Medicare), but not Box 1 (Wages).
 
3a. Request that your former employer refund the excess Social Security 
and Medicare taxes (FICA) that you paid. Your former employer can recover this 
refund by filing an amended Form 941 for the period in which the bonus was 
paid.
 
3b. If your former employer refuses to refund excess FICA tax, ask for a 
statement indicating the amount of the overpayment and will file this statement 
with a request for a tax refund directly with the IRS."

 

And this is the response from my old employer's HR department: 

 

“Since this bonus repayment is for a bonus paid in a prior tax year, this can be claimed on the annual tax return with guidelines based on the amount of the re-payment.  Because it was repayment from a prior year the IRS still requires payment of SS and medicare along with the additional medicare EE tax.  The employee though does have the ability to claim this with their annual filings.”

Once we receive the full $35,000, we can write a letter indicating such for your records."

 

Not sure what to do....

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Level 15

Repayment of signing bonus in subsequent year


@jacolacs wrote:

@Opus 17thank you for your responses here, they are extremely helpful! What if  i) the amount I had to repay back in a  subsequent year was less than $3,000, ii) received an amended w2 (w-2c) but box 1 was empty, and  iii) my 2019 returns, which is the year I repaid the bonus, will use the standard deduction as I have no itemized deduction (other than this potential repayment)? Am I out of luck? If so that's kind of BS! How is that fair? 


You don't have any options to deduct the repayment in your situation.  Talk to Congress, they set the $3000 limit on using the special deduction for repaid wages.  

 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**
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Level 15

Repayment of signing bonus in subsequent year


@Newtotax wrote:

@Opus 17 I'm in the same position as the original poster, received bonus in September 2019 and left March 2020. This is my tax professional's advice:

"1. Repay the net bonus + Federal Income Tax Withheld on bonus + 
State Income Tax Withheld on bonus. 
2. Request former employer to send a W2C – Corrected W2 for the year 
in which the employer paid the bonus; the W2C changes Box 3 (Social Security) and Box 
5 (Medicare), but not Box 1 (Wages).
 
3a. Request that your former employer refund the excess Social Security 
and Medicare taxes (FICA) that you paid. Your former employer can recover this 
refund by filing an amended Form 941 for the period in which the bonus was 
paid.
 
3b. If your former employer refuses to refund excess FICA tax, ask for a 
statement indicating the amount of the overpayment and will file this statement 
with a request for a tax refund directly with the IRS."

 

And this is the response from my old employer's HR department: 

 

“Since this bonus repayment is for a bonus paid in a prior tax year, this can be claimed on the annual tax return with guidelines based on the amount of the re-payment.  Because it was repayment from a prior year the IRS still requires payment of SS and medicare along with the additional medicare EE tax.  The employee though does have the ability to claim this with their annual filings.”

Once we receive the full $35,000, we can write a letter indicating such for your records."

 

Not sure what to do....


It looks like your employer is going with 3b.  If the gross bonus was $35,000, you need to repay the full $35,000.  I doubt your employment contract allows you to make adjustments for taxes.

 

For a $35,000 bonus, you paid approximately $2600 in social security taxes and medicare and $8800 in federal income tax.  If you repay the full $35,000, you are "out" $11,400.  You get the $8800 back using the claim of right procedure on your 2020 tax return.  For the social security and medicare, your employer is refusing to make an adjustment, but your accountant thinks she can get that back for you.  You will also need to file a claim of right claim for state taxes, your accountant will help you with that. 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**
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New Member

Repayment of signing bonus in subsequent year

Hi @Opus 17:

I received $12K sign-on bonus in 2017. I left the company in 2018 and returned $5K. I filed my 2017 tax and 2018 tax without knowing what is discussed here. I didn't receive any W-2C (Never asked for one). Never signed for the 941-X, etc. Can I amend my 2018 tax (1040-X) taking $5K deduction and explaining in Part III with supporting document that I paid back the sign on bonus? As per 525 page 34-35, method-1 works for me.

 

FYI- From My HR "You did receive a $12,000 sign on bonus in 2017.  And we withheld $5,000 of that sign on bonus over the last two paychecks you received in 2018.  This is coded as a miscellaneous deduction not a reduction in gross wages.  We will not be sending you a corrected W-2, there is nothing to correct."

 

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Level 15

Repayment of signing bonus in subsequent year


@ahmed041 wrote:

Hi @Opus 17:

I received $12K sign-on bonus in 2017. I left the company in 2018 and returned $5K. I filed my 2017 tax and 2018 tax without knowing what is discussed here. I didn't receive any W-2C (Never asked for one). Never signed for the 941-X, etc. Can I amend my 2018 tax (1040-X) taking $5K deduction and explaining in Part III with supporting document that I paid back the sign on bonus? As per 525 page 34-35, method-1 works for me.

 

FYI- From My HR "You did receive a $12,000 sign on bonus in 2017.  And we withheld $5,000 of that sign on bonus over the last two paychecks you received in 2018.  This is coded as a miscellaneous deduction not a reduction in gross wages.  We will not be sending you a corrected W-2, there is nothing to correct."

 


You need to examine your 2018 W-2.  Suppose your gross salary was supposed to be $10,000 per month and you worked 5 months.  If the repayment was deducted from your wages before tax, then box 1 of your W-2 would report your wages as $45,000.  In that case, you can't amend to claim a tax credit because you were already not taxed on the repayment.  

 

Look at it this way.  Suppose you were paid $50,000 and your W-2 shows $50,000 in wages, and you are taxed on $50,000 in wages.  Then you write them a check for $5000.  In that case, since you repaid them with after-tax money, you can deduct the repayment or take the claim of right credit, since over 2017-2018, you were taxed on $5000 more than your net wages.

 

But if you were paid $50,000, and the company withheld the $5000 on a pre-tax basis and only taxed you on $45,000, you have repaid them with pre-tax money.  Over your employment, you were taxed on your net wages after repayment (extra tax in 2017, less tax in 2018).  So you can't take the claim of right credit or deduction again.  

 

It sounds like "this was a miscellaneous deduction not a reduction in gross wages" means that you were taxed on all your wages, including the repayment that was withheld.  If true, you can file an amended return for 2018 to claim the deduction or credit.  But I don't feel confident in expressing a definitive opinion without a detailed review of your W-2 and your pay stubs (which I will not do--don't send that kind of documents to a rando on the internet!)

 

If you were only taxed on your wages after repayment, then the fact that you were not taxed on that amount in 2018 makes up for the fact that you were taxed on it in 2017 and you can't claim another deduction or credit since that would be double dipping. 

*Answers are correct to the best of my ability but do not constitute legal or tax advice.*
**If a post answers your question, choose it by clicking on "Mark as Best Answer".**
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New Member

Repayment of signing bonus in subsequent year

Hi @Opus 17 : Thanks a lot for responding to my question/concern. 

Paragraph 1:

1. The HR didn't adjust wages. HR confirmed that and I am  also confirming you after taking a look at my 2018 W2.

Paragraph-4

2. I paid 5K after tax (from my last two pay stubs) money.

 

The HR basically didn't do anything. The HR in fact didn't file 941-X. 

 

I would appreciate your feedback on how to amend the 2018 tax? After reading Pub 525, I verified the calculation and deduction is better for me. My questions are:

1. In form 1040-X, do I need to put $5K in column B for the income and deduction item 1?

2. Do I need to explain in Part III Why am I adjusting the AGI?

3. Provide supporting document (email from HR, I pasted in my earlier post and last two pay stubs showing deduction)

4. Do I need to attach or complete any other forms with this amendment?

5. Since the company didn't file 941-X, can I do anything to get back the tax I paid? any form to attach?

 

Thanks for your response. I appreciate your time.

Best Regards.