Sign on Bonus

Today TaxMama hears from Valoree in the Tax Quips Forum with this question. “My client received a sign-on bonus of $30,000. He worked awhile for the company, but left before the contract was up. He got a loan to pay back the $30,000 – and paid about $2,400.00 in interest. Is it possible to deduct $30,000.00 from his income?”

 Dear Valoree,

That’s such a shame. Generally the sign-on bonuses don’t have to repaid if you are there for a specified amount of time. It is SO costly to pay them back. What a pity.

And, as you know…but wish it were not true,… since the Tax Reform Act of 1986, personal interest is not deductible. A job is personal. Paying back the bonus is personal. Sorry, not deductible.

However, the $30,000 bonus? Yes, you may deduct that as a Miscellaneous Itemized Deduction, subject to the 2% of AGI reduction.

 And remember, you can find answers to all kinds of questions about wage repayments and other tax issues, free. Where? Where else? At www.TaxMama.com.

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3 thoughts on “Sign on Bonus

  1. Pingback: Ask TaxMama Issue 615 – Welcome to Autumn | taxmama |

  2. TaxMama says:

    Hi Gary,
    It’s an interesting idea.
    But what credit would this be?
    This income was part of his wages in the prior year.
    Now he is paying it back.
    He is a cash basis taxpayer.
    He may only deduct it in the year when he repays it.

    Perhaps he could amend the prior year return and treat it as a loan, rather than income.
    That might be a thought.

    But a credit?
    What credit?
    I’m not familiar with that.
    Please clarify.

    Thanks!

    Hugs
    Eva

  3. Gary Compton says:

    Could not Valoree claim a line 71 credit for the amount repaid? The credit would be calculated by redoing the prior year return without the $30,000.

    Gary

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