Tax refund after signing bonus repayment

[koursaros]

Hi, I have received a signing bonus of $60,000 over 2 years ($30,000 in 2022 and $30,000 in 2023) which I repaid in full (gross amount, including all taxes: federal, state, Medicare, Social Security) as I left the company early. The repayment was done in 2023.

The employer has issued my 2023 W-2 which is adjusted only for the repayment of the later part of the bonus, i.e., my compensation in Box 1 and the taxes in Box(es) 2, 4, 6, 17 are only adjusted for the 2023 bonus amount of $30,000 repaid to the employer. They will not adjust my 2022 W-2 nor refund any over-collected Medicare or Social Security taxes, whatsoever.

After reading IRS Publication 525, as the repayment is over $3000, I plan to either take a $30,000 itemized deduction or a credit by calculating the difference this bonus would make in taxes for 2022 if I had not received it.

To keep things simple, let's assume that for each bonus part of $30,000, the Medicare taxes are $1000 and the Social Security taxes another $1000.

I would appreciate your help with some questions I have before filing to be able to recover the taxes I overpaid:

1. I want to file IRS Form 843 to recover the Medicare and Social Security taxes for 2022, explicitly. If I do so, can I include Medicare and Social Security as part of the deduction or credit computation in my tax return and still claim $1000 (Medicare) + $1000 (Social Security) = $2000 on Form 843? Or I can only claim $28,000 for deduction or credit calculation and then claim the remaining $2000 on Form 843?
2. For tax year 2022, do I need to submit 2 separate IRS Form 843, one for Medicare ($1000) and one for Social Security ($1000) or can I just submit one for both ($2000)?
3. Is there anything else I can do to maximize the tax refund on the 2023 bonus part of $30,000? As I mentioned, I returned the full amount and the employer did not refund any taxes. Can I file an IRS Form 843 for 2023 Medicare and Social Security, or file for any deduction or credit? I think that I won't be able to as the 2023 W-2 already has a $30,000 adjustment for the repayment.

Thank you!

[Mike9241]

for 2022, since there was no cap on Medicare wages, you use $30K to determine Medicare refund @1.45% or $435. For Social Security, you might have gone over the maximum of $147,000 in compensation for Social Security purposes for the year. You'll need to determine what your gross compensation was for Social Security proposes. If $147K or less the full $30K is eligible for the refund. If $177K, or more then none of the $30K is eligible for the refund. For example, if gross compensation for Social Security purposes was $150K. you didn't pay social security taxes on $3,000 so only $27,000 is eligible for Social Security refund @6.2%. There are often differences between compensation for boxes 1, 3, and 5.  

Form 843 instructions

 Refund of excess social security, Medicare, or RRTA tax. If
you are claiming a refund of excess social security, Medicare, or
RRTA tax withheld by one employer, you must, if possible,
attach a statement from the employer. The statement should
indicate the following.
• The amount, if any, the employer has repaid or reimbursed
you for excess taxes withheld.
• The amount, if any, of credit or refund claimed by the
employer or authorized by you to be claimed by the employer.
The employer should include in the statement the fact that it is
made in support of your claim for refund of employee tax paid by
the employer to the IRS.
If you cannot obtain a statement from the employer, you
should attach a statement with the same information to the best

of your knowledge and belief and include in the statement an
explanation of why you could not obtain a statement from the
employer. Attach a copy of your Form W-2 to prove the amount

of social security, Medicare, or RRTA tax withheld.

**************************************

How to recoup income taxes paid on that $30K in 2022.

on your 2023 return you:

1) can take as a deduction on Schedule A line 16 and denote it as IRC 1341 repayment OR
2) recompute the taxes for 2022 by reducing box 1 of your W-2 by $30K. The reduction in taxes is what you can claim as a credit on your 2023 1040 on schedule 3 line 13b

[koursaros]

Hi @Mike9241, thanks a lot for providing this information!

My total compensation for 2022 is less than the $147,000 limit of 2022 for maximum taxable earnings for Social Security taxes, so the full $30,000 should be eligible for refund. Boxes 1,3,5 are all the same for my W-2s of 2022.

I understand the 2 options for adjusting this repayment on my 2023 tax return (deduction on Schedule A or credit on Schedule 3). However, I am wondering if I should include Medicare and Social Security in these calculations and still be eligible to file Form 843. So, the taxes on the $30,000 for 2022 are:

Medicare (@1.45%): $435

Social Security (@6.2%): $1860

for a total of Medicare + Social Security = $2295

That said, if I plan to file Form 843 for $2295

• Can I still claim $30,000 as a deduction in Schedule A or I can only claim $30,000 - $2295 = $27,705?
• Same question for the option of a tax credit in Schedule 3. When computing what my income would be without the $30K bonus, should I subtract $30,000 or $27,705 from Box 1 of W-2?

[DianeW777]

No, do not include the medicare or social security taxes on your income tax return.  Form 843 must be used for that refund and attach everything that was explained by Mike9241. 

Yes, you can still file the 'Claim of Right' for the repayment of the bonus in 2023, that was paid in 2022 and included on your 2022 tax return (W-2).  The rest of the information will give you the steps to use in TurboTax for this process,

The Claim of Right is explained more in the article below.  However I will add some information here about how to report on your tax return to determine if it applies to you and how you prefer to enter it on your tax return.

• What is a claim of right repayment?

Taking the Income Reduction in TurboTax (most common)

1. Login to your TurboTax account or open your tax return.
2. Click on Deductions & Credits
3. Locate the section Other Deductions and Credits (you may first need to select on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop.)
4. Click Start (or Revisit) beside Other Deductible Expenses.
5. A number of questions will appear on the upcoming screens. You are looking for the one that reads Claim of right repayment over $3,000. Click yes when you see this screen. (Be sure to ignore the similar question, repayments of $3,000 or less.)
6. Enter the amount of the repayment in the box Claim of right repayment over $3,000 and click Continue.

Taking the Credit in TurboTax (Must use TurboTax Desktop) -- How to switch from online TurboTax to the TurboTax software?

There are two components to taking the credit in TurboTax. The first part entails determining the amount of the tax that was overpaid in the year the income was received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line D Claim of Right, IRC 1341 credit for repayments of prior year income.
5.  Click on the Step-by-Step or Easy Step icon in the upper right corner to return to the interview mode and finish working on your tax return.

@koursaros