Taxpayer signed 2 year contract to work for employer. The hours were intolerable and he terminated employment and found new job. Had to pay $30,000+ to end contract. New employer paid and included on his W-2 wages. Deduction ? Sch A Subject to 2% AGI?
A penalty for breach of contract is not deductible. He hit the jackpot when his new employer paid it. He only has to pay the tax on 30K instead of paying the entire 30K himself.
Signing bonus repaid under claim of right is handled under the claim of right rules.
In general, the employer you left will have already netted the repayment against your wages for that year, so there's no additional deduction.
(Because there are laws against involuntary servitude, I can't imagine this being an issue other than where repayment of a signing bonus was concerned.)
