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Old 04-16-2017, 09:37 AM   #1
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Joined APC: Dec 2015
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Default ? for someone w/ an accounting background


I have a question in regards to bonus repayment to a company.


Upon hire, I was paid a $10,000 bonus for my first year. However, the bonus was paid to me with 40% taxes withdrawn. In other words, I was paid $6,000.

I worked for 4 months. So, 1/3 of a year. My employer wants the bonus paid back, pro- rated, which I intend to do. However, the bonus they want returned is 2/3 of the original $10,000, Not 2/3 of the $6,000 they paid me. They said that the company pays taxes, so, the tax money that they withdrew from my bonus doesn't count or something to that effect.

Is this correct or am I being taken for a ride?

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Old 04-16-2017, 03:46 PM   #2
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Actually sounds reasonable to me. You should be able to get a refund on the excess withheld tax ...in about a year (that's what sucks).

The real question you need to ask your tax person: If you refund the bonus pro rata, does that mean the bonus was "unpaid" to you and therefore you don't owe tax, and are therefore entitled to a refund on excess withheld taxes?

It's possible the bonus is considered income which cannot be "unpaid", in which case you might owe full tax on the $10K at whatever your usual bracket is. The fact that you pay the company some money to relieve your contractual obligation to them may not undue the original transaction. Better ask a real expert.
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Old 05-18-2017, 12:46 AM   #3
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You should use a witholding calculator available at numerous places on the internet. You enter your expected tax information...the tool tells you what your witholding should be in order to have a neutral tax return. You should be able to increase your wotholdings a couple of notches so you get a slightly larger paycheck the reat of the year. Just don't forget to lower your witholding January 1st or you'll be in for a surprise.
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Old 05-18-2017, 02:58 PM   #4
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The company will be reimbursed taxes also, soooooo?
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Old 05-23-2017, 07:19 AM   #5
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Originally Posted by HeavyDriver View Post
The company will be reimbursed taxes also, soooooo?
I don't think so. I think it works this way:

Company payroll account is drawn down $10,000
|----> $6,000 to employee
|----> $4,000 to IRS in emp's name
[Company's payroll account is reduced by $10,000]
Employee decides to leave
|-----> $10,000 sent to employer
[Company's payroll is increased by $10,000]
At year end, company prepares a W-2, which shows the NET amount paid to the employee (i.e., it doesn't show the $10,000 bonus paid to the employee) and the FULL amount of taxes withheld and sent to the IRS in the employee's name.

When the employee files his taxes at the end of the year he will have a tax liability for all his earnings: the net from the employer who paid him the bonus, earnings from his new employer, and any other taxable income he may have earned. He will calculate his total tax liability, and will find one of three outcomes: 1) he will have overpaid his taxes and will get a refund, or, 2) he will have underpaid his taxes and will need to send the IRS a check, or, 3) he will have paid exactly the right amount of taxes. Outcome 3 is rare; he'll likely fall into 1 or 2, but the particulars of his personal tax situation will determine which it is.

I'm not a CPA, but I'm pretty sure this is how it works.
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