MsTabbyKats Posted June 3, 2015 Report Share Posted June 3, 2015 (edited) I think my client is screwed....but maybe I'm wrong.Client is well into the AMT zone.If he leaves his current employer....he needs to pay back about $300K.New employer will give him the $300K...but it's taxable...so client only walks out with $150K in his pocket.He is planning to pay current employer with this $150K....plus $150 of his own...to total the $300K.The $300K can be a Schedule A deduction...but since he pays AMT....the deduction will do nothing for him.Does anybody disagree...or have other insight?In addition....would the current employer deduct the $300K from his 2015 income...so..if his income is $400K for 2015...the W-2 would only be $100K. (I doubt it..since it's a penalty...but I wanted to ask anyway...just for some insight).TIA Edited June 3, 2015 by MsTabbyKats Quote Link to comment Share on other sites More sharing options...
easytax Posted June 3, 2015 Report Share Posted June 3, 2015 More info is required.Payback - what & maybe why.Can he just take 150 now from new employer with other 150 paid to him next year, etc. (If understood, basically the 300 is @ 50% so the 150 might be there to -- but it saves 75 intax - yes he needs to come up with 75 but maybe that can be -- next year??)2015 income is income -- so why would old employer deduct the 300 from that for him --- again, what is 300 paid back - for? 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted June 3, 2015 Report Share Posted June 3, 2015 (edited) I think my client is screwed....but maybe I'm wrong.Client is well into the AMT zone.If he leaves his current employer....he needs to pay back about $300K.New employer will give him the $300K...but it's taxable...so client only walks out with $150K in his pocket.He is planning to pay current employer with this $150K....plus $150 of his own...to total the $300K.The $300K can be a Schedule A deduction...but since he pays AMT....the deduction will do nothing for him.Does anybody disagree...or have other insight?In addition....would the current employer deduct the $300K from his 2015 income...so..if his income is $400K for 2015...the W-2 would only be $100K. (I doubt it..since it's a penalty...but I wanted to ask anyway...just for some insight).TIAI might disagree depending on whether the $300K was included in income in the prior year and what it was for. When things like signing bonuses or other income paid and included in an employee's income under claim of right, meaning it was included in income because he had unrestricted use of the funds and held and treated the funds as his own, if the subsequent repayment is more than $3,000, then that person may be able to take a credit against tax in the year of repayment. In Pub 525, look at Method 2 under "Repayments".Also, your client may be able to recoup the Medicare taxes withheld on the $300K also, and here I'm assuming that since this payment he received was so large that he was already over the FICA limit and FICA taxes were not withheld, so there is no amount of FICA to be regained. If he wouldn't have exceeded the FICA wage base without the inclusion of the $300K, then there may be some FICA withholding to be recovered also. This is also in Pub 525 further down in the same Repayments section.In addition to Pub 525, if you want the official cite, it is Code Sec 1341 and Reg § 1.1341-1.The client will not be able to recoup any excess Medicare surtax from the employer though since that would have been paid on the individual tax return form 1040, and in that case it would be through a tax refund from the IRS by filing an amended return for the prior year on form 1040X. Edited June 3, 2015 by jklcpa clarify & distinguish betw Medicare w/h & surtax, and added cites 1 Quote Link to comment Share on other sites More sharing options...
MsTabbyKats Posted June 3, 2015 Author Report Share Posted June 3, 2015 Thanks!About the current employer deducting the payment....just hoping this method existed. (After all current employer would be getting the money.)He needs all the money he can get to make the payment to current employer....so splitting it between 2 years wouldn't be good.The "credit method" seems good.He has to pay back the entire previous bonus....plus a percentage of all prior bonuses....so there will be quite a bit of calculations. Quote Link to comment Share on other sites More sharing options...
Recommended Posts
Join the conversation
You can post now and register later. If you have an account, sign in now to post with your account.