Repayment of Unemployment Overpayment

[JerryO]

Good afternoon,

I filed my 2020 federal tax return in April, after that I was notified by PA Unemployment Office that they overpaid me in 2020 and wanted repaid $13,500. I made this payment in April. Should I file an amended federal return for 2020 or should I file this repayment on my 2021 return next year. My taxable income in 2020 is most likely to be higher than my 2021 taxable income.

[rjs]

You don't have a choice about when to report the repayment. You repaid it in 2021. It goes on your 2021 tax return.

[Mike9241]

be careful when filling in 2021, not all of the repayment may count. we may have to wait to see what the IRS says about this

for example, in 2020 you reported $20,000 in UC and you qualify for the full exemption. thus $10,200 will be non-taxable and you will only pay taxes on $9,800.  if you hadn't been overpaid you would have only gotten $6,500 which would have been fully exempt so none would be taxable. thus you are only repaying $9,800 for tax purposes 

in 2021 you may claim a tax deduction or credit for the repayment 

however, the tax law bars a deduction or credit if the repayment is $3,000 or less

if you are entitled to claim it, you can take it either as an itemized deduction not subject to the 2% AGI limitation

or claim a tax credit by recomputing your taxes for 2020 as if the taxable portion was not included in income.

you would need to use the taxes as per the 2020 return as amended by the IRS and then as revised by you taking into account the IRS exemption and the repayment.  the difference in taxes would be claimed (assuming no change in 2021 forms) on schedule 3 line 12cd - write IRC 1341 for the discription.