Expert: Alexandra Shainskaya, CPA - 7/24/2009

Question
I am getting a bonus at work but one of the stipulations is that if I leave the company in the next year I will have to pay it back to them.  If I leave, they will want 100% back meaning that I will have to pay all of the withholding taxes, SS and medicare back too.  Will I get all of that back when I file my taxes next year or is all of that lost?

Answer
Dear Thomas,

In theory, your company is supposed to file an amended return with the IRS and you should receive a refund.  However, in practice it often works very differently and the employee often loses.  Often companies will refuse to amend their returns, which puts the employee in a situation of either complaining to the IRS (which could yield long-term results but might not be good for relations with the firm) or of claiming the expense as an itemized deduction on 1040 Schedule A.  Unfortunately this itemized deduction is subject to the 2% of AGI floor so you would lose an amount equal to 2% of your adjusted gross income.

Best regards,

Alexandra Shainskaya, CPA
Tax & Business Advisory Services LLC
www.TaxBusinessAdvisory.com