He picked up W-2 income for what he was short so there is no gain to report on the sale.

Any bonus that his employer pays him does NOT change the calculation of gain/loss of the house.

Thanks IronMan and TaxGuyBill. Are your replies contradictory to one another? 

Thanks IronMan . Is your reply contradictory to TaxGuyBill? 

Thanks  TaxGuyBill. Is your reply contradictory to IronMan? 

Same answer.  He still has a loss on the sale and he has additional income reported on his W-2.

Nothing is contradictory. They don't Relate the way you are thinking they relate.

The Nice Employer justified giving the person a Bonus, likely because the job had something to do with the need to sell the house no matter the market.

That's the only way they relate.

You've said your client sold the home for a loss therefore there you don't need to be concerned about the home sale gain exclusion.   The loss is not deductible.  

The "reimbursement" is W2 income.  As @qbteachmt  pointed out - it's nothing more than an employer being kind with a bonus.     Enter the W2 as you would any other W2.