How to earn back taxes from signing bonus repayment?

[Anonymous]

Let me first start off by saying that I have been searching for the answer for many months, including on this site (so, sorry if someone else has already asked this question); however, all previous posts were not from the 2018 tax year except for one. That one was answered before the 2018 tax forms came out, and the answer in that post was simply that they didn't know until the forms came out (not very helpful at all). BTW: I did file a tax extension simply because I couldn't figure this out.
So here it is: I was paid a signing bonus ($5,000) in 2017 and repaid it in full, including taxes, in 2018. When I was paid the signing bonus in 2017, I was still in the process of relocating for the job (from MA to FL), and so in addition to federal taxes ($1,250), social security taxes ($310), and medicare taxes ($72.50) being withheld, MA state taxes ($235.49) were also taken (total of $1,867.99). I now fully live in FL, which does not have a state income tax. How do I get back the federal, social security, medicare, and state taxes that were paid on the signing bonus? (I suspect the state tax may be an issue given that I don't have a state tax form to fill out for MA this year) I attempted to enter it as a claim of right repayment greater than $3,000 and it did not change my refund at all. Also, when I enter in the amount of repayment, is that meant to be the amount of "over payment" in the repayment, as in the amount of taxes paid back, or the whole $5,000 that was paid back? By not getting any additional refund, it suggests that I have to pay to work at my previous employer, as I had to shell out money when repaying them. Please guide me in the right direction so that I am not having to pay for technically unearned compensation. Thank you in advance!

[Anonymous]

Thank you!

[linear · Accepted solution]

The IRS provides instruction in Publication 525, page 34 (https://www.irs.gov/pub/irs-pdf/p525.pdf). Note that they offer two methods for figuring your tax - it's possible that method 1 (using the amount repaid as an itemized deduction) isn't making your total allowed deductions greater than the standard deduction. There's an example in Pub 525 as well, and they give instructions for claiming a refund of SS and Medicare tax.

[Anonymous]

Thank you, but how do I figure the tax for the year of repayment. The example gives numbers but does not explain how they got those numbers.

[Anonymous]

Thank you, but how do I figure the tax for the year of repayment. The example gives numbers but does not explain how they got those numbers.

[linear]

You need to re-do your 2017 tax return, without entering the signing bonus, to determine what your federal tax would have been without it. The difference between that and the tax originally computed for 2017 is the amount you can claim as a credit for 2018.

[Anonymous]

Last year I had a consultant do my taxes for me (he used turbotax), how do I essentially create a new "scenario" from last year? Is there a way my tax data can be saved and sent to me, or do I have to start from scratch, and in either case, how do I use last year's tax code in turbotax? Also, bonuses are taxed at a much higher rate than regular pay, so just reducing my total income from 2017 wouldn't reduce the taxes appropriately, am I correct?

[linear]

A bonus may push your total income into a higher tax bracket, but bonuses aren't by themselves taxed at a higher rate.

If you are going to recalculate 2017 by yourself, you will either have to download forms and instructions for 2017 from <a rel="nofollow" target="_blank" href="http://www.irs.gov">www.irs.gov</a>, or buy the CD/Download version of TurboTax 2017. Depending on the complexity of your tax return, it could just be as simple as subtracting from your 2017 AGI and looking up the tax due in the tax tables, or much more complicated - impossible for me to say.

[Anonymous]

One more question: How do I get back the MA state tax while not having a MA tax return to file for 2018?

[linear]

I don't believe MA provides a way to recover that tax unless you had MA income to report in 2018. See: <a rel="nofollow" target="_blank" href="https://www.mass.gov/service-details/learn-about-the-claim-of-right-deduction">https://www.mass.gov/...>

"Since Massachusetts gross income for a tax year is federal gross income for the same period with modifications not relevant here, any amount included in taxpayers' federal gross income for the taxable year under a claim of right must also be included in their Massachusetts gross income for the same taxable year.

If taxpayers later repay amounts received under a Claim of Right because they didn’t, in fact, have a right to it, they may deduct the amount of that income from his Massachusetts gross income in the year of repayment."

[Anonymous]

One more question: How do I get back the MA state tax while not having a MA tax return to file for 2018?

[Anonymous]

Okay. Thank you so much for all your help!