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In Fall of 2018 I was a senior in college and I accepted a job offer with a signing bonus of $10k. $5k of that was deposited to my bank account in 2018 and the other $5k (after some taxes) was deposited in 2019 when I started the job. I live in the state of Virginia.

My question is: does $5k of the signing bonus get taxed in 2018 and the other $5k in 2019 OR does the full $10k only get taxed in 2019?

For additional context, I thought that since I received $5k in 2018, I filed that as additional income in my 2018 tax return. Looking at my W2 from my company for 2019, it looks like the pay statement calculates taxes on the full $10k. (Not sure if this is relevant but in 2018, I received exactly $5,000.00 in my bank account but only received something like $2,XXX.XX in 2019 since they deducted taxes). When I spoke with the help desk for my company over the phone the lady said that since in 2018 they didn't have my tax information, taxes weren't deducted until 2019. If that is correct, I suppose I need to amend my 2018 returns to be $5k less? Is she correct?

Update: Here's the final pay statement I received in 2019

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  • Could the company have collected the advance payment if you didn't start on the agreed date in 2019? Does the 2019 W2 include the full 10000 in the gross total pay?
    – user662852
    Commented Jan 29, 2020 at 16:46
  • @user662852 Yes, the company could have collected the advance payment if I didn't start in 2019. The W2 Gross Pay in Box 1 is $33,918 which matches with the Total Gross number in the final pay statement I received for 2019.
    – Pie Junkie
    Commented Jan 29, 2020 at 17:00
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    If you reported the $5k in 2018, you may want a tax professional to help you sort this out. You either erroneously reported the first $5k as 2018 income, or your company is erroneously reporting it as 2019 income. You'll want good documentation to avoid paying taxes on it twice.
    – chepner
    Commented Jan 29, 2020 at 21:16

2 Answers 2

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Looking at your pay statement, it appears they structured this as a loan, which you paid back in 2019 with a "magic bonus". That's a good way to do that.

Loans are not taxed

Your arrangement had it that you got the $5000 in 2018, but would not keep it unless you started work in 2019.

Had you not started work in 2019 (a fact not knowable until 2019), you would have had to pay the $5000 back, and it would never have been income in 2018.

So it appears they did the accounting correctly for that instance. They posted the 2018 $5000 as a loan. Then, in 2019, once the signing bonus had struck, they seized back the $5000 loan repayment out of your paycheck, while simultaneously posting a $5000 magic bonus. So the effect on your paycheck was a wash.

As far as your pocketbook is concerned these canceled each other out, and it's six of one, half dozen of the other.

As far as the IRS is concerned, neither the loan nor repayment is taxable, but the $5000 magic bonus is taxable. In 2019.

If you want to see that in closer detail, look at your pay statement that you linked. You supposedly got $5000 bonus in 2018 and $5000 in 2019. But your pay statement clearly shows you got two $5000 bonuses in 2019, totalling the $10,000 you were promised. And notice how they're marked. One is marked Sign Bn Ln Pymt G&T on the gross earnings side, that being "Signing Bonus Loan payment G&T". That is the "magic bonus" that pays off the loan. Then over on the "Other deductions" side, you see Prepaid Sign Bn Ded which is them intercepting the magic bonus to use it to settle your loan.

So it's both credited on one side as taxable income, and debited on the other side as a loan payback (since the money was paid in 2018).

If you reported the 5000 as income in 2018, you did so as your own flight of fancy, without support of a 1099 or W-2 telling you to do that. You will need to amend your 2018 taxes using a Form 1040X, to remove that income from 2018. Then do the same with the state. This will net you well over $1000 of refund.

For the explanation, you simply state "Did not realize $5000 signing bonus was actually loan". This will surprise no one at IRS, it's a common mistake, and will fully explain the matter since they don't have any 1099 or W-2 data on file for that amount.

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Income, and a bonus is income, is taxed in the year it is paid. So unless there was a very special case 5K would be taxed in each year.

That special case would be like, if the company paid the bonus on the 30th of December, but for some reason the deposit did not hit your account until sometime in January. Then the bonus would be taxed in the December year although you not having access to it until January.

Given your attached pic, I would ask the payroll department for clarification.

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  • Thanks, I'll ask the payroll department to clarify. In the case that the company stands by the W2, would I deduct $5,000 from my gross income on my 2019 tax forms? Is that allowed? Do I just substantiate it?
    – Pie Junkie
    Commented Jan 29, 2020 at 19:27
  • I doubt they accounted for the income twice. Talk to them, see what they say.
    – Pete B.
    Commented Jan 29, 2020 at 19:31

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