Repaid 2020 sign-on bonus in 2021, where to claim tax credit if not itemizing?

Wait, I'm confused about the corrected W-2. If they already got a corrected W-2 for 2020, wouldn't that mean they already got the "credit" since the W-2 now shows the lower amount? Why would they need to claim anything on their 2021 taxes?

The corrected W-2 by itself doesn't automatically adjust their 2020 taxes - it's just documentation of the change. They still need to take action to benefit from this correction. If they choose the amended return route, they would use that corrected W-2 to file a 1040-X for 2020, which would result in a refund for the taxes they originally paid on that bonus amount. If they choose the credit route, they use their original 2020 return as filed (with the higher income) but take a credit on their 2021 return to compensate for the tax they overpaid in 2020 due to the bonus they later repaid.

Does it work with most tax software? I've tried asking TurboTax support about something similar and they kept giving me generic answers that didn't help at all.

I'm suspicious of any tax service that claims to handle complex situations easily. Did you actually get your refund without any issues? I'd be worried about getting flagged for audit.

It works with pretty much any tax software because it tells you exactly where to enter the information and what forms you need - I used H&R Block online and had no problems following their guidance. I did get my refund without any issues, and it actually came faster than I expected. The service doesn't file your taxes for you - it just analyzes your situation and gives you specific guidance on how to handle unusual tax situations correctly. Since I was following the actual tax code (IRC 1341), there's no reason it would trigger an audit.

How does this actually work? I thought there was no way to skip the IRS phone queue. Are they just constantly calling on your behalf or something?

Sorry but this sounds like BS to me. Nobody can magically get through to the IRS faster. I've been trying for months. There's no secret backdoor or special number that gets priority.

They use an automated system that navigates the IRS phone tree and waits on hold for you. When they reach a live agent, you get a call connecting you directly to that agent. You're not skipping the line - they're just waiting in it for you. The reason it works is because most people give up after being on hold for an hour or more. Their system doesn't get frustrated or need to go to the bathroom, so it just keeps waiting until it gets through.

Thank you for mentioning this! I just double-checked the 2021 W-2 and you're right - Box 1 does NOT include the repaid amount. It's separate from the W-2 entirely. My husband actually wrote them a check for the repayment since he had already left the company. That's why we need to handle this through the claim of right provision. Seems like Schedule 3, Line 13b is the consensus from everyone here.

That makes perfect sense then. Since the repayment was made directly and not through payroll deduction on the new job, you'll definitely need to use the claim of right provision. Schedule 3, Line 13b with "IRC 1341" notation is exactly right. Just be sure to keep documentation of the repayment (like a copy of the check and any correspondence) in case the IRS ever has questions. They don't require you to submit this documentation with your return, but you should keep it for your records.

There's no minimum threshold for claiming a credit under IRC 1341, but there is a threshold that determines which method you can use. If the repayment was $3,000 or less, you can only take it as an itemized deduction (which may not help if you take the standard deduction). For repayments over $3,000 (like the OP's situation), you can choose either the deduction or the credit approach, whichever benefits you more. So for your $800 repayment, unfortunately you would only be able to claim it as an itemized deduction on Schedule A, which wouldn't help if you're taking the standard deduction.