I had received a sign-on bonus last year, so it appeared as an income last year and I have paid taxes on it. As I did not complete one year with the company I had to return my sign-on bonus this year. How do I claim already paid taxes?

You should get a credit against your 2006 salary for the returned bonus. Make sure your company's accounting department gives you that credit and refunds the withheld taxes.

You should get a credit against your 2006 salary for the returned bonus. Make sure your company's accounting department gives you that credit and refunds the withheld taxes.

Why would the refund come from the company when the taxes were paid to the federal/state (although withheld by the company)? Wouldn't the company say that I would need to claim a credit in the subsequent year's taxes?

The company eventually WILL get a refund from the federal government, but YOU are entitled to a share of that refund.