Repayment of Relocation Expenses

[David]

TP had $82K relocation expenses paid by her new employer. She terminated her employment after 16 months and did not realize that if she did not stay for 18 months that she would have to pay back 2/3 of the relocation expenses - $55K.

 

$23K of relocation expenses were included on the TP's W-2 wages. Another $11K was paid for transportation of HH goods, which was not reported as income nor was it deducted on the TP's tax return.

 

$42K was paid for home sale costs and was not reported as income on the TP's W-2. This is the largest amount of relocation expenses paid by the employer.

 

Is my understanding of the correct treatment for the repayment, as follows, correct?

 

It appears that the TP can either claim a deduction or credit for repayment of amounts under a claim of right only for 2/3 of the repayment related to the amounts included in the TP's income. Accordingly, 2/3 of the $42K home sale costs would not be able to be included in the deduction or credit. Or is there some way to deduct this amount?

 

Also, is the TP allowed to deduct 2/3 of the $11K repayment related to transportation of HH goods on her 2014 Form 3903? Or would this be included in the deduction or credit for repayment of amounts under a claim of right?

 

Thanks for your help.

[BulldogTom]

OK, I will take a shot at this.

 

The only issue that I see is the 23K of W2 income.  The other payments were not taxable income, therefore no deduction is allowed against that income.

 

So the only taxable income was the 23K that was included on the W2.  I don't think you can apply any of that against a 3903 because it appears that the taxpayer has received tax free income to cover the actual costs.  So we are left with the taxpayer having to repay 15K approx. that may be a tax deduction or credit.  Since the amount is above 3K, you have the choice to take a credit equal to the amount of tax paid in the year the income was reported and tax paid on it, or take a deduction of the 15K on the current year return.

 

I am stretching here.  Going back in my memory banks for the right answer.  I hope I nailed it, but you should double check me on this one.

 

Tom

Newark, CA

[BulldogTom]

Let me add I would watch for a revised W2 or look for any income included in the current year W2 related to the previously tax free income.  The employer may decide they have to include this into income.

 

Tom

Newark, CA

[Max W]

The $11K and $42 K are not taxable only IF they were not taken as a deduction. I would guess that the $42 K was taken as part of the CG calculation for the sale of the house.   That return could be amended to make the 2/3 part not taxable.

 

The 1/3 of the $11K can go on 3903 for the year of the move , or the following year.

 

The $23K could get messy.  Ideally the company should send a corrected W-2,.  Otherwise the repayment would have to go on Schedule A Miscellaneous.

 

BTW - 22 +23 + 42 = $74K. Was something left out?