Q: A new employee received a signing bonus last November, which he had to repay if he left the company within two years. He did leave, and now we don’t know what to do. Do we need to amend his 2014 W-2 form? What documentation must we collect from him?
A: You can’t amend this employee’s 2014 W-2 form, since he’s repaying wages in a later calendar year. The correct way to handle this is for the employee to repay the gross amount of the bonus. You reimburse him for the overwithheld FICA taxes. He should sign a statement that he repaid the bonus, the amount repaid and that he was reimbursed for his overwithheld FICA taxes. Finally, file 941-X and W-2c/W-3c forms to correct those overwithheld taxes. The employee may be entitled to deduct the overwithheld income taxes on this year’s 1040 form.