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wmarcy528
New Member

Repayment of earnings. On pension, limit of earnings was $30k. Repaid lump sum of $10k. can I deducted by repayment and how?

Returned to work as temp.  Government pension regs limit earnings to 30K before penalty.  I earned $52k and had to repay over $10K or have $880 per month deducted from my pension.   Can I claim this payment until repayment?  and how with Turbo tax under misc deductions ?  I submitted this question a week or so ago and received no response.



1 Best answer

Accepted Solutions
JulieR
New Member

Repayment of earnings. On pension, limit of earnings was $30k. Repaid lump sum of $10k. can I deducted by repayment and how?

It depends.  If the repayment was made in 2018 for an overpayment occurring in a prior year, and the repayment was over $3,000, you can take a credit for the amount. If the overpayment and repayment occurred in the same year then you report it as a negative amount on line 21 of Schedule 1 of your return.  

The following provides an explanation about these types of repayments. (See Repayment over $3,000.) 

Repayments: If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. In most cases, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction.

Type of deduction: The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. In most cases, you deduct the repayment on the same form or schedule on which you previously reported it as income. For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040).

Repayment over $3,000:   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained earlier under Type of deduction ). However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. If you qualify for this choice, figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.

When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Each instance of repayment is not considered separately.

If you choose a credit (This can only be done in the Forms mode of the Desktop version of TurboTax): OPEN FORMS - Schedule 5 "Other Payments and Refundable Credits" - click on line 74 and open the smart worksheet. Enter the repayment on line D "Claim of Right, IRC 1341 credit for repayments of prior year income". (see screenshots below)



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3 Replies
JulieR
New Member

Repayment of earnings. On pension, limit of earnings was $30k. Repaid lump sum of $10k. can I deducted by repayment and how?

Was this a repayment for income received in a prior year?
wmarcy528
New Member

Repayment of earnings. On pension, limit of earnings was $30k. Repaid lump sum of $10k. can I deducted by repayment and how?

Sorry for late response.  this income was for 2017 but the amount of repayment was not made until April 2018.  Per your explanation, it looks like I can claim the amount on my 1040 under misc deductions Schedule A.  I don't think I can file it under a right of claim since I knew before I went back to work what the limitations and penalties were that were in place.
JulieR
New Member

Repayment of earnings. On pension, limit of earnings was $30k. Repaid lump sum of $10k. can I deducted by repayment and how?

It depends.  If the repayment was made in 2018 for an overpayment occurring in a prior year, and the repayment was over $3,000, you can take a credit for the amount. If the overpayment and repayment occurred in the same year then you report it as a negative amount on line 21 of Schedule 1 of your return.  

The following provides an explanation about these types of repayments. (See Repayment over $3,000.) 

Repayments: If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. In most cases, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction.

Type of deduction: The type of deduction you are allowed in the year of repayment depends on the type of income you included in the earlier year. In most cases, you deduct the repayment on the same form or schedule on which you previously reported it as income. For example, if you reported it as self-employment income, deduct it as a business expense on Schedule C or Schedule C-EZ (Form 1040) or Schedule F (Form 1040). If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). If you reported it as wages, unemployment compensation, or other nonbusiness income, deduct it as a miscellaneous itemized deduction on Schedule A (Form 1040).

Repayment over $3,000:   If the amount you repaid was more than $3,000, you can deduct the repayment (as explained earlier under Type of deduction ). However, you can choose instead to take a tax credit for the year of repayment if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. If you qualify for this choice, figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax.

When determining whether the amount you repaid was more or less than $3,000, consider the total amount being repaid on the return. Each instance of repayment is not considered separately.

If you choose a credit (This can only be done in the Forms mode of the Desktop version of TurboTax): OPEN FORMS - Schedule 5 "Other Payments and Refundable Credits" - click on line 74 and open the smart worksheet. Enter the repayment on line D "Claim of Right, IRC 1341 credit for repayments of prior year income". (see screenshots below)



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