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marcuscato
Level 4

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare

Hello,

 

My company said they will send me a W2C in 6 weeks for a sign on bonus clawback payment. I plan to file an amendment with that for year 2020, if I get that W2C to reclaim the difference in tax. Can I do that or does the W2C cover only the payroll of the company? Also, would the amendment cover SSN + Medicare differences as well? I have to reclaim the difference between Federal, NY State, NY City, SSN and Medicare. The total difference is roughly $5800 and the difference between SSN + Medicare is roughly $1020. I have requested my company to refund me the $1020 - they said I will need to sign a form that I acknowledge that I won't claim that amount from IRS - I am willing to do that, however not sure about the cons. 

 

DETAILS:

  • I joined a company in July 2020 and got a sign-on bonus, at the time of joining.
  • I left the company in March 2021, before a year was up. Upon my departure, as part of the sign-on bonus agreement, I was asked by the company to pay back part of the sign-on bonus.
  • I repaid the bonus clawback in Jun 2021.
  • I have already filed my taxes for year 2020 and it has been accepted, but haven't gotten the refund yet because of IRS delays

I need to reclaim the difference in the taxes I paid to IRS/NYState&City/SSN/Medicare (*very roughly* total $5800) for the bonus.

6 Replies
Opus 17
Level 15

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare

Duplicate question, see the answers posted here,

https://ttlc.intuit.com/community/taxes/discussion/sign-on-bonus-repayment-tax-adjustment-w2c-or-irc...

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
marcuscato
Level 4

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare

Even though details are same, in this question I am asking if I can use tax amendment for SSN and Medicare part. Given the many layers to this puzzle, I decided to open a separate question

Opus 17
Level 15

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare


@marcuscato wrote:

Even though details are same, in this question I am asking if I can use tax amendment for SSN and Medicare part. Given the many layers to this puzzle, I decided to open a separate question


Please don't do that, ask your question as a comment in the previous thread.  Otherwise, the person answering here may not know the details that were previously discussed and give a duplicate or incorrect answer.  If you keep everything together, then everyone (experts and you) can see everything in one place.)

 

The answer, however, is you will not file an amended tax return.  If the company only changes your social security and medicare tax, that does not affect your income tax.

 

As I answered before, the company can only legally change your social security and medicare withholding (W-2 boxes 3-6).  They can't change your box 1 or box 16 taxable wages because those monies were actually paid to you in 2020 and the W-2 must reflect what was actually paid.

 

If they change boxes 3-6, and refund the excess social security and medicare withholding, that saves you having to file a claim for the social security and medicare tax on form 853.  You will still need to file a claim of right on your 2021 income tax return to recover the income taxes

 

If the company changes your box 1 and box 16 taxable wages, that would be a violation of the law by the company.  You might use that information to file an amended 2020 return instead of using a claim of right on your 2021 return, but that would be improper.  (It might be the path of least resistance, but before you did that I would send you to a tax professional for advice.  And I don't think the company will do that unless they are a small company managing their own payroll and are confused about the law.  I think the company will only adjust boxes 3-6.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
marcuscato
Level 4

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare

@Opus 17 thank you for the reply. I am confused a little. Even before I asked for the refund on SSN + Medicare, my company was going to send me a W2C. I asked for the refund on SSN + Medicare only as an afterthought. So, what were they planning on sending me W2C for, if not to adjust the Wages, Tips and Other income related boxes?

marcuscato
Level 4

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare

@Opus 17 My company's payroll said that they will issue a W2C and boxes 1-6 and boxes 16 -19 will be updated. That is pretty much every relevant box. However, I am confused by this. Why would they edit boxes 2, 4, 6 and 16 i.e. federal, social security, medicare, state withholdings given those were actually withheld from my paystubs? If they reduce it, I would end up paying taxes in an amendment, given the withholding are down. And I cannot see why the boxes would have larger numbers either. Please can you help?

Opus 17
Level 15

Sign on bonus repayment/clawback - Federal, State, City, Social Security, Medicare


@marcuscato wrote:

@Opus 17 My company's payroll said that they will issue a W2C and boxes 1-6 and boxes 16 -19 will be updated. That is pretty much every relevant box. However, I am confused by this. Why would they edit boxes 2, 4, 6 and 16 i.e. federal, social security, medicare, state withholdings given those were actually withheld from my paystubs? If they reduce it, I would end up paying taxes in an amendment, given the withholding are down. And I cannot see why the boxes would have larger numbers either. Please can you help?


They can't legally update 1, 2, 16, or 17.  Those boxes show what you were actually paid, and what was actually withheld.  At this point you need to wait for the actual W-2C, and then probably see a tax professional.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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