This is known as an IRC 1341 Claim of Right. This is listed at the very bottom of the deductions and credits page under "other uncommon deductions." (You will also recover less tax this way because the tax rates were lowered 2-3% at each bracket, so the deduction will save less than the tax paid previously, in most cases.)Ĭomplex procedure: take a direct tax credit on your 2018 return in the amount that your tax was increased in 2017 due to this money. But, you must itemize already to get the maximum benefit, and the standard deduction was raised by tax reform. Simple procedure: take a special itemized deduction not subject to the 2% rule. Since the box 1 taxable wages from 2017 won't change, and assuming they do not deduct it from your 2018 W-2, then you need to use one of the following procedures. Is this something I would be able to do with TurboTax myself? For additional information, please refer to IRS Publication 525, Taxable and Nontaxable Income, and the instructions to Form W-2C as a reference."īased on what you said above it looks like I might be eligible to deduct it from my income or take a credit. The Form W-2C WILL NOT change the amount of your federal and applicable state taxable wages or income tax withholdings from the amounts reported on the original W-2. The Form W-2C will reflect a reduction in Medicare wages and, if applicable Social Security wages equal to the amount of taxable income repaid.
"Upon repayment, the firm will file a Form W-2C for the year that the wages were included in your W-2. I received the following email from my former employer. I repaid the bonus in 2018 and the amount minus the Social Security and Medicare which I did not have to repay was still greater than $3,000. I will include some additional information. I'm not sure there's much point in going into the details until you know if you will get a corrected 2017 W-2 or if the repayment is deducted from your 2018 W-2. If the repayment is more than $3000, there is a special procedure to deduct it from your income or take a credit for the excess tax. If the repayment is less than $3000 you are out of luck. If they leave the 2017 W-2 as-is, and the 2018 W-2 is for your actual salary and does not reflect the repayment, then:
In that case, your 2018 W-2 would show less income and you would file with that and pay the correct tax and you end up even. If you repaid the bonus in 2018, they could also adjust your 2018 W-2 to reflect that fact - essentially, deducting the bonus repayment from your final paychecks. If they do issue a corrected W-, you simply file an amended 2017 return and if the income is lower, you will owe less tax and get a refund of the excess you paid last year. If they paid the bonus in 2017, they are not supposed to issue a corrected 2017 W-2 to remove the bonus.