Claim of Right Repayment - For State Return using Credit

[ZulfiH]

Background

I had to return a portion of sign-on bonus to my previous employer (Claim of Right Repayment / IRS Pub 525).

• Method 1: 'Claim of Right - Deduction' works both for Federal as well as State Tax Return.
• Method 2: 'Claim of Right - Credit' works only on Federal return?

Question

• How do I apply 'Claim of Right - Credit' for the state tax return?                                                                      
• Can I claim 'credit' for federal and 'deduction' for state on my taxes for claim of right repayment (by update Schedule A on the State Tax Return)?

[Mike9241]

what state? state tax laws can differ from federal

[Hal_Al]

As Mike 9241 said, it depends on the state.

That said, if it is allowed it's almost certainly going to be separate from what you claimed on the federal return.  Deduction only is the most likely scenario.  If allowed it will come up in the state interview. 

[ZulfiH1]

Thanks Mike. The state is Kentucky.

[ZulfiH1]

Thanks for responding Hal and Mike

IRS Pub 525, page 36 offers two methods for 'Claim of Right.

a) Deduction: 

When I use this method, using TurboTax, on Federal Schedule 3, the data automatically transferred to my state tax return. 

b) Credit: 

When I use this method for Federal, the data does not reflect in State return.  however, it results in a less Federal tax (and more refund)

So the question is:  Is it permissible that I use 'Credit' method for Federal and 'Deduction' method for Sate (by directly updating KY state Schedule A) -- Technically, yes, TurboTax allows me without any error in the tax return.  I could not find any rules in favor or against this.  Hence, my question in this forum

Appreciate your time

Regards

Zulfi-

[Hal_Al]

Q.  Is it permissible that I use 'Credit' method for Federal and 'Deduction' method for Sate (by directly updating KY state Schedule A) ?

A. Yes.

[ZulfiH1]

Thank you. This is helpful.