Fred, a cash basis taxpayer, received a $15,000 bonus from his employer in 2021. The bonus was based on the company’s profits for 2020. In 2022, the company discovered that its 2020 profits were computed incorrectly. As a result, Fred received an additional $10,000 with respect to 2020 profits. Fred’s marginal tax rate in 2021 was 12%, and it was 35% in 2022. 

Sue, also a cash basis taxpayer, received a $35,000 bonus in 2021 that was based on 2020 profits. In 2022, the company discovered that it had overstated its profits in 2021. As a result, Sue was required to repay $10,000 of her bonus in 2022. Sue was in the 35% marginal tax bracket in 2021 and in the 12% marginal bracket in 2022.

What special tax treatment is available to Fred and Sue as a result of their employer’s errors?