In 2021, I had to repay part of the unemployment benefits I received in 2020. I entered the amount of repayment when prompted, but still only see gross amount on return.

[kramerica814]

In 2021, I had to repay part of the unemployment benefits I received in 2020. I went through all of the prompts to first enter the gross amount of unemployment benefits my wife earned in 2021 and then the amount I had to repay from 2021 benefits. When I look at schedule 1 line 7, I see the gross amount, but there is no adjustment for the repayment anywhere on the schedule. It appears that I am still being taxed for the full gross amount in 2021 instead of netting the repayment somewhere. Is this a glitch or should I be looking for the adjustment somewhere else?

[DawnC]

The amount you paid back affects your 2020 tax bill, not your 2021 tax bill - that is why you don't see an adjustment on your 2021 return.   There was a $10,200 unemployment exclusion last year, so you probably did not pay any tax on that income.   Did you repay more than $10,200 (or the amount you paid tax on) of 2020 unemployment in 2021?  

A Claim of Right Repayment is a deduction you can take in the current tax year if you’re required to pay back income in excess of $3,000 from a previous tax year that you thought you could keep.   You reported and paid taxes on the money, not knowing you’d have to pay it back.  Because of the one-time UE exclusion last year, you probably did not pay tax on the income and in that case, you do not need to do anything with it this year.  

[kramerica814]

Thanks for the reply. I thought of the 10,200 exclusion, but i paid taxes on more than 30k of unemployment benefits in 2020. My understsnding of tax code is that if the repayment occurs in 2021 and relates to 2020 benefits, it should decrease 2021 income (though i could be missing a nuance).  The strange thing is that it actually shows up in the tt wizzard with the repayment netted against income, but it doesnt translate to the actual tax schedule that way. Thats why i was wondering if there is a product glitch.

[ErnieS0]

2020 unemployment repaid in 2021 will no show up as an adjustment on Form 1040, Schedule 1, line 7 because the original amount was received in a different year.

IRS allows you to either deduct or take a tax credit for a “claim of right” of more than $3,000. If you entered a repayment in the unemployment section of TurboTax, it will show up as an itemized deduction on Schedule A, line 16 as Claim Repayments.

Claiming a tax credit often works out better.

You can claim a credit using TurboTax CD/Download instead of entering the repayment as a deduction.

1. Calculate what your tax would have been in 2020 had you repaid those benefits in 2020
2. Tap Forms in 2021 TurboTax CD/Download
3. In Forms in My Return, select 1040/1040SR Wks
4. Go down to Schedule 3, Part II
5. Find the Other Credits and Payments Smart Worksheet between lines 12 and 13
6. Enter the tax difference on Line E Claim of Right, IRC 1341 credit for repayments of prior year income
7. Tap Step-by-Step in the top right to get back to the interview mode

[kramerica814]

Thank you very much. That context is very helpful. A couple of quick follow ups, possibly more for the benefit of others who face this situation:

1. It appears (from your response and publication 525) that there is no option to adjust current year taxes for repayments of prior year benefits if the repayment was less than $3,000. My repayment was $1K, which would put me in this bucket. Is that your understanding as well?

2. If the repayment was over $3,000 (assuming it's a "claim of rights"), the options are to a. itemize a deduction on schedule A or b. recalculate previous year tax and claim a credit. If you don't itemize deductions, which most of don't these days, then option a is also off the table, right?

3. If one chooses to claim a tax credit, am I right in interpreting from your steps below that this is not possible with the online versions of Turbo Tax? You refer to the CD/download, so that's what I'm reacting to.

4. Do you know of a way pass feedback on to the TT product team so that they can hopefully make this clearer in future versions of the software?  The way it is now, in the "unemployment/paid family leave" section of income, I answered all of the questions, entered the gross amount of $7K for 2021 unemployment from 1099-G, then entered $1K amount repaid in 2021 when prompted in the wizard. The amount showing for unemployment/paid family leave, where TT summarizes all of my income and expenses in 2021, is $6K. Of course the $7K amount is what is actually transferred to the 1040. This is pretty confusing. I would have expected TT to tell me that the payback amount was too low to impact 2021 taxes and then show the gross amount for 2021 in the software rather than showing the net amount and just adding the gross amount to the 1040.

Thanks again for the detailed explanation. It's not the answer I was expecting or hoping for, but you helped me to get to the detail I needed to understand the discrepancy I was seeing.   

[AmyC]

1. Yes, since 2018, the amount must be over $3k. In 2026, this changes again.

2. The credit is usually the best solution.

3. The desktop version is the only one to handle the credit.

4. The program is very big and cumbersome and we do make suggestions. Many suggestions are turned into help articles as there is just so much to understand around a situation.

See also: 

How to download TurboTax Desktop software from TurboTax.com

My deduction answer with pictures and guide.

My instructions for how to determine the credit.

@kramerica814