Sick pay....paid back???

[Denne]

I have a client that received Sick pay during 2010 and had taxes withheld and of course paid tax. He received a settlement from his employer this year, but part of the settlement was that he would be paying back all of the sick pay he had received. That sick pay was withheld from his settlement check. He brought up a good question today. If he paid back the sick pay then why should he have paid taxes and how does he get those taxes paid back to him from 2010. There will be not document to reverse the sick pay at this point. Shouldn't there be a Corrected W-2 coming his way? If not.....how would we properly document his reduction in income for 2010?

Thank you for your help ;~)

[jainen]

>>why should he have paid taxes and how does he get those taxes paid back<<

The answer to the first part, "why," is "because." That's the way our elected representatives wrote the tax law.

The answer to the second part, "how," is on page 36 of Pub 525. It is such an unpleasant answer that I won't ruin our good mood by posting it. Look it up in the quiet privacy of your own office.

[Denne]

Thanks jainen.....I just realized that I hadn't taken time to tell you I appreciate your ideas.