Bonus repayment in full if i leave before one year?

Question

Hi,
I have resigned my job today. In the my offer letter the following sentense is written:

"In addition to your monthly salary, you will receive a one-time hiring bonus in the amount of $5,000.00, less all applicable taxes, which is repayable in full should you voluntarily leave the company within one year of your hire date".

I joined the company on Mar 6th 2006. So my one year will be completed on Mar 5th 2007. But i given 2 weeks notice today which lead to 16th Feb as my last date.

Now my HR says that i have to repay my bonus, no exceptions !!

Now how much i have to repay. Is it $5000 or $2800 i got after tax ? What does full mean here ?

Giving back $5000 is weird. I can give back what ever i got in my hand.

If at all i give $5000 will i get $2200 from IRS back?

Please help.
Thanks

Answer 1

You will owe them for everything pre-tax. Your wages will be reduced for the year based on that, and as such, you will in effect have your taxes on that portion cancelled.

Received $5k and paid taxes on it.

Returned $5k and had $5K of gross income reduced, get taxes reduced by same amount paid to net you 0.

It should be like any other loss, for example, selling a poorly performing stock for a $5k loss reduces your gross income. Same thing.

Answer 2

You have to pay the whole thing back since that's what your agreement says. It will reduce your income from that employer for 2007, assuming that you pay it all back in 2007.

They paid you a bonus of $5,000.00. That's taxable income so they are legally obligated to withhold income tax from it. You must pay back the whole $5,000.00. Since it will reduce your income for 2007 you'll get your tax benefit there. The exact tax consequences will depend upon your total income for 2007. It may be more or less than the $2,200 withheld.

You must pay it back in 2007 to get any reduction of your income from them.

I won't comment on quitting 3 weeks prior to your anniversary date; you must have had one HELL of a reason to do that!