My Internship in 2019 overpaid me a 3 weeks of wages totaling $3393.19 pre-tax. Of course, federal, state, and local taxes were taken out. My net pay after taxes was $2547.45
I knew the money wasn't mine so I kept it untouched in a savings account and waited until they asked for it back or automatically withdrew it from my account.
It's now February 2020. They're now asking for me to repay it. I don't have a problem repaying it but they're asking me to cut a check for $3133.61 pretax (I believe they were able to recover FICA taxes which is why it's less than the pretax amount above).
The paper I got in the mail says:
NOTE: Per the IRS, repayments made after the year of overpayment do not adjust income taxable wages and we may only adjust FICA taxable wages for the year of overpayment. Therefore, the amount you would repay would be higher since we would not be able to account for Federal and State Taxes.
My main question is, how do I recover the taxes that I've overpaid on this amount? I tried putting the repaid amount into TurboTax but TurboTax tells me to stick with Standard Deduction. I'm not exactly sure what to do.
Another note… My employer's payroll company (ADP) has already sent me a W2. The W2 form includes the overpaid wages and taxes withheld. Will they send me an updated W2 once I pay back the wages adjusting that I was paid less and I should get a refund for the federal taxes withheld?