Bonus Payback

[Dontax44]

Client received a sign on bonus in July 2017. Reported on his W-2 and income tax, social security and Medicare taxes were withheld from the bonus amount. The client left the employer shortly after being employed so that a significant portion of the bonus had to be repaid. As of November 2019 the bonus portion owing was fully repaid. 

Do we ask the employer to issue a corrected W-2 (W-2C) for 2017 and amend the 2017 Form 1040 tax return?

Or do we report the payback amount on Schedule C for 2019?

If schedule C how does client recoup social security and Medicare taxes paid on full bonus amount?

Thanks.

[garman22]

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@Dontax44 wrote:

Client received a sign on bonus in July 2017. Reported on his W-2 and income tax, social security and Medicare taxes were withheld from the bonus amount. The client left the employer shortly after being employed so that a significant portion of the bonus had to be repaid. As of November 2019 the bonus portion owing was fully repaid. 

Do we ask the employer to issue a corrected W-2 (W-2C) for 2017 and amend the 2017 Form 1040 tax return?

Or do we report the payback amount on Schedule C for 2019?

If schedule C how does client recoup social security and Medicare taxes paid on full bonus amount?

Thanks.

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You want to research, Claim of Right - IRC Section 1341.

Both of your ways are incorrect.