How do I go about recouping the taxes paid on a signing bonus if I have to pay that bonus back to the employer?

Dec 19, 2018

I received a signing bonus from a new employer that included an 18-month claw back provision. I received the after-tax amount of the bonus in November, which would count toward my taxable income for the 2018 year. However, if I leave the company in 2019, before the 18 months have passed, I am required to pay back the gross amount of the bonus to my employer. How would I go about recouping the amount I paid in taxes?

If the bonus is paid in 2018 and the claw back occurs in 2019, then the claw back affects your 2019 income. It would not affect the 2018 taxes, so those taxes are already paid and accounted for. The handling of the claw back would be initiated at the employer level and not the employee level. For example, if you were to leave, they could take back part, if not all, of the claw back from unpaid salary and PTO at the time of separation. If the amount owed is more than that and you are required to write a check to the company, I would ask them to do a negative payroll check. This would mean the paid back income would come off the 2019 income paid to date. There is no real provision to deduct this on your personal return and the company is in control of the process, so that is where the adjustment would come.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Mark B. Zinman, CPA, is a managing partner with Zinman & Company in Southampton, Pa.

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