retention bonus payback and tax deduction (different states)

[sry234]

I received retention bonus $xx,xxx.xx with an year contract. I am quitting the job in 8 months and now (in jan 2015) need to repay the full amount. Tax is deducted on it (IL and federal tax) in tax year 2014.

My questions are

1) how will i get back the tax I paid in IL/Federal during tax year 2014? My 2014 w2 is going to have that bonus as income but not the repayment that i did in jan 2015
2) what forms should i get from employer to enable the 2015 deduction
3) is there a way to accommodate the payback or deduction in 2014 tax year itself?

I am now moving to a different state with no state tax and i have only a few days salary in 2015 tax year in IL.

thanks in advance for help!

 

[FlyingRon]

The employer will issue a 941X to the IRS to get their share of the taxes paid refunded. They should issue you a W-2C for that tax year as well. You can then use a 1040X to get back the taxes you paid.

 

[sry234]

I will have to payback in full

Thank you ron! The employer is very clear that I have to pay the full amount back and "I" go behind tax deductions. Now,

1) any document I need from employer to do deduction? (Is W2C going to help?) -w2C for 2014?
2) which year I will be able to apply for deduction? Tax year 2014 or 2015?

I will not have any with holdings in 2015 in IL state as I am moving.

 

[FlyingRon]

Yes, they can make you (if you were obliged to pay back the bonus) pay the entire amount of the bonus. The fact that you paid taxes on it doesn't change that.
In addition to the taxes YOU paid, behind the scenes, they also paid taxes on the money they paid you and that's what the 941X is.

All the stuff we're talking about is in reference to the tax year that the bonus was originally paid in (if I understand you, that is 2014).

Now, it's possible since you likely do not yet have the W-2's for 2014, it's possible they'll already decrease the amount they reported they paid you in the overall (block 1) taxable wages.
They'll have reported all the moneys they have withheld from you in blocks 2 and 4. If they've done all that, then you just file your taxes normally. Your tax liability will not include the
bonus money repaid and you'll be probably overwithheld and you'll get a bigger refund. I'd check carefully, that the SS tax wasn't overwithheld and if it is you can fix that on your 2014 return as well and get that money as part of your refund.

If they issue the W-2 before adjusting it for the repaid bonus they will have to issue a W-2C correcting the 2014 tax year. If you wait until you have the W-2C before you file your 2014 tax return, you just use corrected numbers and act just like above.

If you don't get the correction before you file your taxes you have the option of filing a 4852 and self correcting the discrepancy or you can file your taxes based on the original W-2 and file a 1040X (for 2014) when you get the correction.

 

[sry234]

thank you

makes sense. thank you.

I will have a few days pay in 2015. I was thinking my w2 for 2015 will have this adjustment as i am paying back in 2015. and was wondering how am i going to have a negative w2.

this makes sense. Thank you Ron!

 

[sry234]

2014 w2 is not updated

Got confirmation that the employer will not adjust in the 2014 W2 as the repayment happened in 2015 not in 2014. Now what are the options to get the tax back?