Expert: Shirley McAllister, CPP, PHR - 4/21/2011

Question
QUESTION: Shirley -

I read your response to the retention bonus payback in regards to repayment of the full gross amount.  What are the implications if the employer only requires the employee to repay the net amount back?  Is it still necessary to issue a W-2C for the year(s) effected?  In your experience, which is the better practice, repayment of the net or gross?

ANSWER: If the employer only asks for the net amount back than no corrected W-2 would need to be filed. The company would be unable to collect their share of the Fica/medicare payment they matched to the employee's fica/medicare payment. They would be out that amount of money and could not get it back from the government. This is why the Gross needs to be repaid and a W-2C files along with amended 941's which is the employer tax filings.

Shirley

---------- FOLLOW-UP ----------

QUESTION: Shirley -

First, thanks so much for your quick response.  I really appreciate it.  Few more clarification questions for you, when you have a free moment.  

In researching this question, I also found responses to employees indicating that if they were paid an amount in the previous year (let's say 2010) and then had to pay it back gross in the following year (2011), and had already filed their returns (2010), that they could either take it as a deduction on Schedule A or as a payment credit for 2011 filings, instead of filing an amended return for 2010.  Is this accurate?  Or when would this apply?  It doesn't seem like the employer is issuing a W-2c in this case?

I'm trying to understand both the obligations as an employer, as well as what the employee would need to do to make corrections.

Thanks again!

Answer
If there is a way to not file a W-2C and still take credit for the repayment than you need someone that knows more about it than I do. I know that this is how our company would handle it. I do not know how you would file it without one in 2011 as you have already claimed both the income and the taxes in 2010.

The company has paid their portiong of the Fica and Medicare in 2010. It is already filed and paid to the government. Unless a revised return is filed on the company remittance which would prompt a W-2C that money will not be refunded to the company.

Perhaps you should speak to a CPA as I am not an accountant so if there is a way it is something I do not know about.  Perhaps if the company forfeits the money they paid in.
Shirley