Pay back of signing bonus

[JON]

Engineer got a signing bonus when hired in December 06. Now has been offerred his dream job and has to reply in 10 days. He will have to repay the $8,000 signing bonus. Is it deductable in 2007. Where and how?

[Zee]

Here's a link to a string on another forum answering this interesting question. I hope it helps. It appears the amount repaid becomes a misc. itemized deduction if the income was originally reported as wages. That stinks. I like the idea of a corrected W2 for 2006 much better.

http://www.askmehelpdesk.com/taxes/returning-sign-bonus-24092.html

[WhiteOleander]

Well you can't correct the W-2 for 2006 because he received the money in 2006. If he pays it back, he can figure the deduction only in the year he actually gives the money back.

[Zee]

Well you can't correct the W-2 for 2006 because he received the money in 2006. If he pays it back, he can figure the deduction only in the year he actually gives the money back.

Yes, that's probably correct. It doesn't appear those answering though you can correct the W2 anyway, but let's assume he can. How about the W2 for the year the bonus is repaid? If he must use a Schedule A misc deduction, it sure isn't an equitable correction.

How did you handle the repayment in your husband's situation that you mentioned in the bankruptcy string?

[Bees Knees]

TTB, page 3-21 explains how to handle re-payments of income (including re-payments of W-2 wages) that are over $3,000 and the re-payment of income is in the following year.

• Repayments over $3,000. Taxpayer can choose to either:
– Claim a deduction. If the amount is a miscellaneous itemized
deduction it is not subject to the 2% AGI limitation. Enter on
line 27, Schedule A.
– Claim a credit for the repaid amount on line 70, Form 1040 calculated
as follows: Refigure tax from the earlier year without
the income that was later repaid. Subtract the refigured tax
from the tax shown on the original return. Enter the result on
line 70, Form 1040. Enter “IRC 1341” next to line 70.

[Zee]

TTB, page 3-21 explains how to handle re-payments of income (including re-payments of W-2 wages) that are over $3,000 and the re-payment of income is in the following year.

• Repayments over $3,000. Taxpayer can choose to either:
– Claim a deduction. If the amount is a miscellaneous itemized
deduction it is not subject to the 2% AGI limitation. Enter on
line 27, Schedule A.
– Claim a credit for the repaid amount on line 70, Form 1040 calculated
as follows: Refigure tax from the earlier year without
the income that was later repaid. Subtract the refigured tax
from the tax shown on the original return. Enter the result on
line 70, Form 1040. Enter “IRC 1341” next to line 70.

OK. Thanks for the clarification. Option 2 is most likely best. I should have looked at the TaxBook, but it's at my office. I'm home. This was also indicated in the earlier string with more careful reading.

[BOB W]

OK. Thanks for the clarification. Option 2 is most likely best. I should have looked at the TaxBook, but it's at my office. I'm home. This was also indicated in the earlier string with more careful reading.

Yes, option 2 seems to give an exact tax credit whereas option 1 can get clouded with 3% issues for higher income individuals itemizing and maybe AMT issues......