@AmyC
@fudixa
2022, not 2021.
Let me explain a bit more. On your 2023 return, you will either,
- claim a special itemized deduction for $7900, which will reduce your 2023 taxable income and therefore reduce your tax. Or,
- claim an IRC1341 tax credit. The way you calculate the credit is to re-calculate your 2022 return as if you never received the $7900 of wages, and figure out how much less your tax would have been. That difference is the credit you can claim on your 2023 return using the IRC1341 procedure.
But even though you will need to perform a recalculation of your 2022 taxes to determine what the credit should be, you still file the 2022 return based on the wages you actually received in 2022 (even though you repaid them in 2023). And recalculating your 2022 tax does not mean you file an amended 2022 return. It is simply the method used to calculate the credit you can claim on your 2023 return.
The deduction method is much easier, but may result in less tax benefit depending on your overall situation. You may use whichever method gives you the largest recovery.
But bottom line for 2022 is, you ignore the repayment since it happened in 2023, and you report your 2022 wages as received, and pay tax accordingly. The credit or deduction for the repayment will be on your 2023 return next year.
