I have a similar situation. I had to pay back 2019 income due to an employer error. Had I caught it before Jan 1st, they would have deposited my check as a net pay adjustment, and then made all of the corresponding corrections to my gross pay (including Social Security, Medicare, Federal Income Tax, State Income Tax, City Income Tax, Deferred Comp, etc) AND issued me a corrected W-2 to reflect all of the necessary changes.
Because no action was taken until after Jan 1, 2020 I had to repay the net amount and their response was to talk to my accountant. I figured there would be an easy way to do an offset to income returned in Turbo Tax. After looking at Pub 525 I was obviously very wrong.
Here is a hypothetical that is pretty close to my situation. I left my employer in November but they failed to remove me from their payroll system. My net income is direct deposited. I didn't notice it until between Christmas and New Years. No one there could answer my question and said they'd call me back in January. I paid back the entire net amount the first week of January, 2020. They sent me a letter acknowledging that this was their error that I could use when doing my taxes.
Based on $7,000 of gross wages, I received $4,000 of net income.
Q1) Since I repaid in January, any adjustment has to wait until I file my 2020 returns next year, correct?
Q2) The only way I could adjust against 2019 income is if I'm doing an accrual method, which my employer has never done. (December work days paid in January count as January income). Am I missing anything that would allow me the flexibility of using the accrual method or any other adjustment to claim against the 2019 income? (I think no.)
Q3) This now has to be claimed as an itemized deduction in 2020, correct?
Q4) By claiming as a deduction, it will not reduce my Medicare or Social Security obligations in the current year, meaning I have now paid $535 more than I otherwise would have over the two years. Correct?
Q5) If this deduction doesn't push me above the standard deduction of $24,000 for Married Filing Jointly, claiming it will not help me recoup any of the taxes (Federal, State, or Local) I paid in 2019, meaning I will be out all of the taxes I paid on the income I ultimately received none of. Correct?
Q6) Relatively speaking, I suppose I should be happy since the error forced me to pay back more than $3,000. Had it been less there would have been no chance to recoup any of the overpayment of taxes. (I guess that's more of a comment than a question!)
Thank you for your help!!!!
@DianeC958
@BillM223
@JohnB5677
