Hi @Opus 17
I followed your instructions and manually completed these following steps.
1. I prepared a new 2017 tax return reducing line 7 wages by the $5000 repayment and re-calculated tax due on line 56. The difference between line 56 on your original return and revised new return is the amount of your credit. The credit is $750.
2. I prepared a NEW 2018 tax return will all your wage and deduction information from the original return. The original Schedule 3 already had line 49 and 50. I put the credit amount of $750 on line 54 and checked box "c" and wrote "IRC 1341" on the line next to box c. I transferred Line 55 from schedule 3 to line 12 of form 1040 and checked the box for "b" (Basically new total is $750 higher than the original line 55). This resulted in a different amount of tax at line 15 ($750 less from the original) and a different amount of refund at line 19 ($750 more than the original.
3. Prepared form 1040-X by copying information from old and new 2018 1040 forms. Lines 1-5 did not change. Line 6-11 will showed the lower amount of tax liability. Line 6 didn't change.
Line 7 changed because of the addition of new credit (increased by $750 in column B and subsequently column C). Line 11 column C is $750 higher than the Column A.
Lines 12-15 did not change. Line 12 didn't change and all other lines are 0. Therefore line 17 is equal to line 12.
Line 18 is my original refund that I already received, line 19 is equal to Line 11 Column A. Line 21 is the new additional refund of $750 (Line 19-Line 11 Column C) and is same as the amount of the IRC 1341 credit I entered on schedule 3. Wrote an explanation in part III (I am taking IRC claim of right credit for wages paid to you in 2017 and repaid to the employer in 2018).
4. You mentioned that Sign and date the NEW 2018 1040 with schedule C. Sign and date the 1040-X. Mail the 1040-X and new 2018 form 1040 with schedule 3 to the IRS.
Q1. How would IRS know that I repaid the $5K? Don't I need to send any proof?
Q2. Do I need to write a cover letter?
Thanks for your assistance. I probably couldn't complete these without your valuable inputs.
