Paying back signing bonus: UPDATE...

[Ph33zy]

Originally posted by: Reel

Originally posted by: Ph33zy
Okay, so its my last week.... and it seems like my company issued my bonus in 2007 since it showed up on my 2007 W2's. I now have to pay back the company the full 5000. I asked them if it should be reflected in my 2008 W2's and they said NO. Does this make sense???? My 2007 W2 will report that I made $5000 more. Shouldn't my W2 for 2008 reflect that I made $5000 less?

See disclaimer above. My intuition says you should expect to adjust your 2007 income not your 2008 income. You are effectively returning income from 2007 not losing money in 2008 if that makes any sense. If I am right, that might be something you could handle in your 2007 tax form before sending it in.

This is what one of my friend who is in finances recommended - with the same disclaimer since he is not an actual accountant either. I think this is my best bet - though I should see an accountant just to confirm.

 

[Reel]

Originally posted by: Ph33zy

Originally posted by: Reel

Originally posted by: Ph33zy
Okay, so its my last week.... and it seems like my company issued my bonus in 2007 since it showed up on my 2007 W2's. I now have to pay back the company the full 5000. I asked them if it should be reflected in my 2008 W2's and they said NO. Does this make sense???? My 2007 W2 will report that I made $5000 more. Shouldn't my W2 for 2008 reflect that I made $5000 less?

See disclaimer above. My intuition says you should expect to adjust your 2007 income not your 2008 income. You are effectively returning income from 2007 not losing money in 2008 if that makes any sense. If I am right, that might be something you could handle in your 2007 tax form before sending it in.

This is what one of my friend who is in finances recommended - with the same disclaimer since he is not an actual accountant either. I think this is my best bet - though I should see an accountant just to confirm.

If you ask about it in the tax thread in the top of OT, I bet one of those guys will give you a more authoritative response.

 

[KK]

when will you have to pay them back? I would think they would have to give you some sort of tax document to show your adjustment.

 

[Ph33zy]

Okay,

I just got the official word from them:

Any amount paid back for payments in 2008 will not be included on your 2008 W2. IRS regulations will not allow us to back out income and recoup taxes on wages paid in a prior calendar year. The repayment $5K must be handled separately on your 2008 income tax returns. You can request a receipt from HR and will have to work with your tax accountant to receive the credit on your 2008 tax return. It should be adjusted on your 2008 income tax returns, lowering your income for the entire amount that you repaid for items paid to you in 2007. Your gross income for this year should be lowered, therefore lowering your tax liabilites for 2008.


Looks like I'm still out 2300. While I can write off 5K of my salary next yaer, I don't think it's going to bring down my tax bracket. Moral of the story is - dont start a new job in December!

 

[JS80]

Originally posted by: Reel

Originally posted by: Ph33zy
Okay, so its my last week.... and it seems like my company issued my bonus in 2007 since it showed up on my 2007 W2's. I now have to pay back the company the full 5000. I asked them if it should be reflected in my 2008 W2's and they said NO. Does this make sense???? My 2007 W2 will report that I made $5000 more. Shouldn't my W2 for 2008 reflect that I made $5000 less?

See disclaimer above. My intuition says you should expect to adjust your 2007 income not your 2008 income. You are effectively returning income from 2007 not losing money in 2008 if that makes any sense. If I am right, that might be something you could handle in your 2007 tax form before sending it in.

Your intuition is wrong. Taxes for individuals are ALWAYS cash basis (whenever the cash transaction occurred is when you can adjust).

You should probably have asked the new company to pay your old employer (write a check directly to them) to "buy you out."


Sidenote: Little tax trick for people living in states with income tax. If you know the following year you will not be working much (i.e. going to grad school) and in the current year you are making tons of money, write a large check to the state saying it's estimated state income tax payments, and you get to write it off your federal income. Then when you get a refund from the state for overpayment and you are now unemployed, you are at a lower tax bracket. Illustration:

2008 you are on track to make $60,000.00
2009 you are on track to make $10,000.00 because you are starting grad school, retiring, etc
You write a check to state for $20,000 for income tax on 12/31/08. Your adjusted 2008 income is $40,000. You receive $20k refund in early 2009, your adjusted income is $30k. You lowered your top rate in 2008.

Only works if you have that kind of money to write a check with.

 

[mugs]

Originally posted by: JS80

Originally posted by: Reel

Originally posted by: Ph33zy
Okay, so its my last week.... and it seems like my company issued my bonus in 2007 since it showed up on my 2007 W2's. I now have to pay back the company the full 5000. I asked them if it should be reflected in my 2008 W2's and they said NO. Does this make sense???? My 2007 W2 will report that I made $5000 more. Shouldn't my W2 for 2008 reflect that I made $5000 less?

See disclaimer above. My intuition says you should expect to adjust your 2007 income not your 2008 income. You are effectively returning income from 2007 not losing money in 2008 if that makes any sense. If I am right, that might be something you could handle in your 2007 tax form before sending it in.

Your intuition is wrong. Taxes for individuals are ALWAYS cash basis (whenever the cash transaction occurred is when you can adjust).

You should probably have asked the new company to pay your old employer (write a check directly to them) to "buy you out."


Sidenote: Little tax trick for people living in states with income tax. If you know the following year you will not be working much (i.e. going to grad school) and in the current year you are making tons of money, write a large check to the state saying it's estimated state income tax payments, and you get to write it off your federal income. Then when you get a refund from the state for overpayment and you are now unemployed, you are at a lower tax bracket. Illustration:

2008 you are on track to make $60,000.00
2009 you are on track to make $10,000.00 because you are starting grad school, retiring, etc
You write a check to state for $20,000 for income tax on 12/31/08. Your adjusted 2008 income is $40,000. You receive $20k refund in early 2009, your adjusted income is $30k. You lowered your top rate in 2008.

Only works if you have that kind of money to write a check with.

Is that legal or is that "legal"?

That is to say, if the IRS audited you they would not look at the absurd overpayment of unowned taxes as an obvious attempt to avoid federal taxes and make you pay the difference?

 

[waffleironhead]

Easy way is to file tax expempt at your new company until after they pay you the bonus, that way they will not take out taxes, then at the end of the year it will be a wash.
I do this every year during the time I get my bonus. A few weeks before bonus time I refile my w-4 to tax exempt, then refile after the check to normal amount. With the amount I usually got back as a refund before, now i usually am about even. Im not sure how legal this is but the accountants at the company i work for allow it.

 

[mugs]

Originally posted by: Ph33zy
Okay,

I just got the official word from them:

Any amount paid back for payments in 2008 will not be included on your 2008 W2. IRS regulations will not allow us to back out income and recoup taxes on wages paid in a prior calendar year. The repayment $5K must be handled separately on your 2008 income tax returns. You can request a receipt from HR and will have to work with your tax accountant to receive the credit on your 2008 tax return. It should be adjusted on your 2008 income tax returns, lowering your income for the entire amount that you repaid for items paid to you in 2007. Your gross income for this year should be lowered, therefore lowering your tax liabilites for 2008.


Looks like I'm still out 2300. While I can write off 5K of my salary next yaer, I don't think it's going to bring down my tax bracket. Moral of the story is - dont start a new job in December!

I don't think you're out any money if you get to deduct the $5k next year... The end result will be that you paid taxes on the bonus in 2007 and you won't pay taxes on the bonus in 2008.

 

[JS80]

Originally posted by: mugs

Originally posted by: JS80

Originally posted by: Reel

Originally posted by: Ph33zy
Okay, so its my last week.... and it seems like my company issued my bonus in 2007 since it showed up on my 2007 W2's. I now have to pay back the company the full 5000. I asked them if it should be reflected in my 2008 W2's and they said NO. Does this make sense???? My 2007 W2 will report that I made $5000 more. Shouldn't my W2 for 2008 reflect that I made $5000 less?

See disclaimer above. My intuition says you should expect to adjust your 2007 income not your 2008 income. You are effectively returning income from 2007 not losing money in 2008 if that makes any sense. If I am right, that might be something you could handle in your 2007 tax form before sending it in.

Your intuition is wrong. Taxes for individuals are ALWAYS cash basis (whenever the cash transaction occurred is when you can adjust).

You should probably have asked the new company to pay your old employer (write a check directly to them) to "buy you out."


Sidenote: Little tax trick for people living in states with income tax. If you know the following year you will not be working much (i.e. going to grad school) and in the current year you are making tons of money, write a large check to the state saying it's estimated state income tax payments, and you get to write it off your federal income. Then when you get a refund from the state for overpayment and you are now unemployed, you are at a lower tax bracket. Illustration:

2008 you are on track to make $60,000.00
2009 you are on track to make $10,000.00 because you are starting grad school, retiring, etc
You write a check to state for $20,000 for income tax on 12/31/08. Your adjusted 2008 income is $40,000. You receive $20k refund in early 2009, your adjusted income is $30k. You lowered your top rate in 2008.

Only works if you have that kind of money to write a check with.

Is that legal or is that "legal"?

That is to say, if the IRS audited you they would not look at the absurd overpayment of unowned taxes as an obvious attempt to avoid federal taxes and make you pay the difference?

It's very legal. My professor taught us this in tax law (he's a cpa and tax lawyer). So as of 2003 it was very legal. IRS don't care because this is very rare and almost no one uses this "trick." And there is only so much money the IRS really loses out on.