W-2 after same-year signing bonus repayment

[koursaros]

Hi, I received a $30,000 signing bonus 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 issued a W-2 that adjusted all boxes as if I have never received this bonus. However, I repaid the full gross amount, as mentioned above. They have not provided any refund for any of the taxes I repaid.

I want to submit Form 843 to recover Medicare and Social Security taxes that I overpaid; also, I want to make sure that I receive as much refund as possible for the remaining taxes (federal, state).

That said, I would appreciate your help with some questions:

• Should the 2023 W-2 include the amount of over-collected taxes (federal, state, Medicare, Social Security) that I repaid but never received? If yes, which W-2 Boxes should be adjusted? It looks to me that the W-2 is incorrect.
• Can I still file IRS Form 843 for Social Security and Medicare refund if the W-2 does not include those taxes in Boxes 4 and 6?

[KrisD15]

Are you sure you overpaid?

All employers pay those taxes the last day of the month following the end of the quarter. 

So if the repayment was made before January 31 2024, your employer may have had time to adjust the FICA for the repayment.  

Look at your paystubs after you made the repayment to see if those taxes were reduced. 

I would not expect to see an adjustment or credit in Boxes 4 and 6, they should just report the correct amount your employer withheld.

Enter the W-2 to see if the program alerts you to over paying Social Security. (If yes, then you do file Form 843)

Since you say they corrected the income, multiply Box 3 by .062 and that should be the tax withheld in box 4.

Multiply box 7 by .0145, that amount should be in box 6. If your income is over 200,000 for the year, add another .9% Medicare tax for the income over 200,000. 

In other words, lets say they had withheld 2,295 FICA for the 30,000 bonus, then you earned another 30,000 after that. Your employer might have stopped withholding tax after the repayment until you were caught up. 

Let's say you only earned 15,000 after repayment, maybe they INCLUDED 1,147.50 in your paycheck but did not include it as income since you were already taxed (FEDERAL) on it. 

Since the repayment was made the same year before you left, the employer would not hand you a check for the FICA on that bonus, they would reconcile it all on your final paycheck. 

[Opus 17]

Let me break this down into parts.

Did they reduce your box 1 taxable wages but not your box 2 federal withholding?  This is correct, they withheld what they withheld, and that's a credit to your account with the IRS.  It was correct that you repaid the gross amount.  With your box 1 wages being less, you should now have a significant overpayment of your federal withholding resulting in a larger than normal tax refund.

Did they also reduce your box 16 state taxable wages but not your box 17 state withholding?  This is also correct, for the same reason, and you should expect a larger than normal state tax refund.  

Did they reduce your box 3 and 5 social security and medicare wages but not change your SS and medicare tax?  This is a bit odd, but it will result in your tax being too high (box 4 should be 6.2% of box 3 and box 6 should be 1.45% of box 5).  If the taxes are too high, this will help prove your case when you file form 843.  However, Turbotax will complain about it, but hopefully will still let you e-file.

If they reduced box 3 and 5 wages AND ALSO reduced your box 4 and 6 taxes, they should refund those taxes to you directly.  If they don't, you will have a problem with form 843 since it will look to the IRS like they did refund the taxes.  You will want to get a letter from the company explaining what they did, to support your 843 filing.    If they did not reduce boxes 3-6 at all, you will have an even trickier issue with your form 843.  (However, remember that the maximum value for social security wages in Box 3 is $160,200.  If your wages were $200,000 and were corrected to $170,000 with the bonus payback, that won't change box 3 and box 4 and you aren't entitled to a refund since your salary is still more than the maximum SS base wage.)

[koursaros]

Hi @Opus 17 thanks a lot for your thorough response!

To answer your questions here is how my W-2 was adjusted after the repayment of the full gross $30K amount:

• All income-related boxes (Box 1, 3, 5, and 16) were reduced by the gross amount of the repayment, i.e., $30,000 and they all have the same value.
• Federal taxes: Box 2 has not been adjusted which seems correct, per your comment.
• State taxes: Box 17 has not been adjusted which seems correct, per your comment.
• Social Security taxes: Box 4 has been adjusted even though I have not received any refund or credit by the employer for the over-collected Social Security tax. This is 6.2% of Box 3 which does not reflect the repaid Social Security.
• Medicare taxes: Box 6 (same issue as Box 4) has been adjusted even though I have not received any refund or credit for the over-collected Medicare tax. This is 1.45% of Box 5 which does not reflect the repaid Medicare.

Note: Box 3 is less than the maximum Social Security-taxable earnings limit for 2023, i.e., it's less than $160,200.

@KrisD15 thank you for your response! I am sure that I overpaid as the repayment was done on the same day I left the company and there are no paystubs issued after that to me, nor any refund of these taxes whatsoever.

@Opus 17 it seems that my case falls under the last paragraph in your comment. Since they reduced Box 3 and 5 wages and also reduced Box 4 and 6 taxes, I will ask for a direct refund to me, a corrected W-2 (W-2 C) or a statement confirming the over-collection.

[Opus 17]

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@koursaros wrote:

@Opus 17 it seems that my case falls under the last paragraph in your comment. Since they reduced Box 3 and 5 wages and also reduced Box 4 and 6 taxes, I will ask for a direct refund to me, a corrected W-2 (W-2 C) or a statement confirming the over-collection.

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You don't necessarily need a corrected W-2 (W-2C).  

Since you now presumably have pay stubs showing that you had (let's imagine) $7000 of SS tax withheld, but your W-2 shows you only had $5200 of SS tax withheld, I would ask what happened to the other $1800 that was very clearly withheld, but not credited to your account.  (And similarly for the Medicare tax.)  They withheld it, according to their own W-2 they should not have withheld it, so it should come to you as a refund.  Get your correspondence in writing, so that you can take that to the IRS if needed, along with copies of your pay stubs and so on.

Alternately, they could issue a W-2C showing the revised (minus the payback) box 1 and box 16, but showing the original box 3-6.  That would support your claim for a refund on form 843.  

If they refuse both a refund and a corrected W-2, you may have a legal case against them, and I would start by complaining to your state's wage and hour (labor) regulatory agency.  You can still apply for a refund of the SS and medicare tax using form 843 but it will be harder to prove your case with the W-2 you currently have. 

[koursaros]

Hi @Opus 17 thanks for your reply!

Unfortunately, I don't see why changing Box 1 and Box 16 (to not account for the income reduction) is appropriate here; if we do that, based on Boxes 4 & 6 it will appear as if I paid less Social Security and Medicare than I should have, which is false. Given that my entire income on this W-2 is subject to Social Security & Medicare, I think that Boxes 1, 3 and 5 should match. 

I still think that they should correct Boxes 4 and 6 to include the over-collected Social Security and Medicare taxes that were part of the bonus. In my opinion, this would be a stronger proof of the over-collection.

I will see what their response is on whether they prefer to issue a direct refund or correct the W-2. If they refuse both I will report this to the IRS before seeking legal action.

[Opus 17]

@koursaros 

I think we are not understanding each other.

Let's assume first that it is correct for box 1, 3 and 5 to be the same for your job.  That means you have no items on your pay stub that are excluded from taxable income but included in social security wages.  Such items include elective contributions to a 401k or other workplace plan, or contributions to an FSA or HSA, or certain other employee benefits.  If you don't have those kinds of items, then it would be a normal situation for box 1, 3 and 5 to be the same.

Now, suppose your gross wages were $60,000 plus the bonus, and you repaid the bonus in the same year it was paid.  It is correct for the company to put the net amount ($60,000) in box 1 and box 16.  The box 2 and box 17 withholding should be reported as whatever was actually withheld from your pay, without adjustment.  That way, you get a refund on your tax return based on the fact that your withholding was more than the tax you owe on your reduced/net ($60,000) wages. 

Regarding boxes 3-6, presumably, the company withheld taxes every week or whatever, as if your wages were $90,000 -- that is, your box 4 tax would be $5580 and your box 6 tax would be $1305.  That's what they reported on their monthly or quarterly reports to the IRA on form 941, and that's what your pay stubs will add up to.

At this point, the company has two options.

A.  They issue a W-2 showing box 4 and box 6 wages of $60,000 (net) and corrected withholding of $3720 and $870.  They must also file amended form 941 that corrects your SS and Medicare withholding.  (If they don't, then the year-end total on their 941s doesn't add up to their year-end total on their W-2s.)  Because they are reporting less withholding than they actually took, and because they got a refund when they amended their 941s, they must refund you the difference ($2295 in this example). 

B. The company can issue a W-2 with $60,000 in box 1 and box 16, but $90,000 in box 3 and box 5.  This is perfectly acceptable, there is no requirement that boxes 1, 3 and 5 must match, it depends on the employee's particular circumstances.  In this case, the $90,000 figure in box 3 and 5 will match the $5580 and $1305 in boxes 4 and 6, and will match your pay stubs.  And in this case, your pay stubs, your W-2, and your account at the social security administration will all match, and the year-end total on their 941s will add up to their year-end total on their W-2s.  Then, you file form 843 including proof that you repaid $30,000 of wages, that the company adjusted your box 1 and box 16 taxable income but did not reduce your box 3 and box 5 income.  Therefore, you are overwithheld on boxes 4 and 6, and since the company refuses to issue a refund, you are requesting it from the IRS.

That's the two way's it is supposed to work. 

If they refuse to do A or B, then you have a legal claim against them and you should contact your state wage regulator.  You can still apply for a refund on form 843, but you will need to make a very detailed and clear explanation with lots of proof. 

[koursaros]

Thanks @Opus 17 that is very clear.

Sorry, I originally misunderstood the sentence in your previous message: "Alternately, they could issue a W-2C showing the revised (minus the payback) box 1 and box 16, but showing the original box 3-6" and I thought that you meant Boxes 3 & 5 should remain the same as the original W-2 issued to me (current W-2), i.e., remain reduced by $30K upon the bonus repayment.

Now, Option B makes perfect sense to me.

If I decide to file Form 843 do you know if I should file a separate Form 843 for Medicare and a separate one for Social Security? .. or I can just file one form as they are both FICA taxes? I wish the instructions here would be a bit more specific: https://www.irs.gov/instructions/i843

[Opus 17]

@koursaros 

File one claim per year, that includes all the claims for that year.  

[koursaros]

Hi @Opus 17 I appreciate your help so far and I am wondering if you can help me with a similar issue.

Basically, there is one more $30K bonus that was paid to me in 2022 and returned (full gross amount) to the same employer in 2023. This is more complicated as it crosses tax years. For this bonus, the employer has not made any adjustments either to the 2022 W-2 or to the 2023 W-2 and I think that's fine. 

Let us call this "Bonus B" (it is still $30K).

The employer issued a letter to me stating that they have received the repayment and that they have not provided any reimbursement for the associated taxes of Bonus B nor will they file a claim on my behalf regarding this.

So, for Bonus B, I plan to do one of the following in my 2023 return:

• Option 1: take a $30K deduction on Schedule A, line 16 (Form 1040).
• Option 2: recompute my 2022 taxes as if I had not received that bonus and take the difference as tax credit for 2023 on Schedule 3, line 13b (Form 1040).

Regardless of which option I choose, I still want to file Form 843 requesting a refund explicitly for the Social Security and Medicare taxes over-collected for Bonus B. If I do that, can I still use the full $30K bonus amount in my calculations for Option 1 or 2? In other words, what I am asking is whether taking a $30K deduction (the $30K includes Medicare and Social Security) disqualifies me from filing Form 843 to seek a refund of these taxes.

[ThomasM125]

You can do as you mention, file for a return of the social security and Medicare taxes, as the income taxes on the $30,000 does not address the payroll tax issue. You are not double-dipping in other words. You are entitled to a return of the overpaid income and payroll taxes.