File Claim of Right Repayment CA

[wonsoo]

Hi,

I had to repay tuition assistance to my former employer in 2022 for leaving the company before the contract date. The amount was over $3000 and I read this post:  https://ttlc.intuit.com/turbotax-support/en-us/help-article/taxation/c[product key removed]ment/L0aW...

However these steps do not seem to work as it will not allow me to edit the 1040 form. How do I go about filing this claim of right repayment? I am using turboTax online 2022 and filing in CA.

Thanks

[PattiF]

This can be filed by either claiming a deduction on Schedule A of the Itemized Deduction Form or using the Claim of Right Credit.

The Credit is a more valuable option but needs to be filed in the Forms mode. You will need to switch to the TurboTax CD/DOwnload format to take the credit. 

Here is a TurboTax Help article with instructions to switch to TurboTax CD/Download from TurboTax Online.

Please see this TurboTax Help article about taking credit for a Claim of Right.

[insanit]

To piggyback off this question, how do I file Claim of Right for CA 2022?

Adding the credit to 1040/1040SR Wks Part 2, Line D did not automatically fill in the CA 540 or Schedule CA.

So, I manually added my credit to Schedule CA, Part 2, Line 16, Column C. But, my state tax refund did not change.

Additional instructions from the Franchise Tax Board say to add the credit to Form 540, line 78. But, how do I change the value of line 78 in TurboTax Mac Desktop version? Double-clicking does not work.

Thanks!

[wonsoo]

I am already using CD/Download form. When I click my 1040 form, it does not let me edit it at all. And I do not see any claim of right form.

[ErnieS0]

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

1. Calculate what your tax would have been in 2022 had you repaid those benefits in 2022
2. Tap Forms in the upper right corner of 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 D 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

See Repayments

[wonsoo]

Thank you for the answer. I was able to find it! Question I had was for the credit for repayments, do I just enter the amount I had to pay back? Ex if I had to pay my employer back 20k, would I just put 20k then? How would I go about calculating the amount I was taxed? I read that the first $5250 is tax free. But I am not sure how to calculate the taxed amount for 20,000-5250. Would I just use the california tax rate and multiple the amount that was over $5250? Sorry I am new at this.

[DianeW777]

Here is detailed steps and information for you to decide whether you wish to take the credit or the income deduction for the Claim of Right, IRC 1341. You will calculate the difference in tax to take the credit by using the information below.

Credit: If you choose to use the credit instead of the income reduction, then you would have to calculate that manually.

• The tax return would have to be completed in the TurboTax CD/Download version if the credit is used.  For assistance with this, see: 
  • How to switch from online TurboTax to the TurboTax software? and TurboTax Prior Year Products.​​​​​​​

1. ​​​​​​​Figure your tax for 2021 without deducting the repaid amount you received in 2022.
2. Refigure your tax from the earlier year (the year you originally reported the income) without including in income the amount you repaid in 2022.
3. Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
4. Subtract the answer in (3) from the tax for 2022 figured without the deduction (step 1)
5. Income Reduction Method (most common): If you choose to use the income reduction method you can use the TurboTax Online or TurboTax Desktop.​​​​​​​

Follow the steps below for the method you have selected.

Taking the Income Reduction in TurboTax

1. Login to your TurboTax account or open your tax return.
2. Click on Federal Taxes and then Deductions & Credits.
3. Locate the section Other Deductions and Credits (you may first need to select on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop.)
4. Click Start (or Revisit) beside Other Deductible Expenses.
5. A number of questions will appear on the upcoming screens. You are looking for the one that reads Claim of right repayment over $3,000. Click yes when you see this screen. (Be sure to ignore the similar question, repayments of $3,000 or less.)
6. Enter the amount of the repayment in the box Claim of right repayment over $3,000 and click Continue.

Taking the Credit in TurboTax

There are two components to taking the credit in TurboTax. The first part entails determining the amount of the tax that was overpaid in the year the income was received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line D Claim of Right, IRC 1341 credit for repayments of prior year income.
5.  Click on the Step-by-Step or Easy Step icon in the upper right corner to return to the interview mode and finish working on your tax return.

@wonsoo 

[glg12]

I'm having the same issue!

I followed the steps to download the TurboTax desktop app for Mac, manually calculating the credit, and manually adding the credit to Form 1040 for the Federal Return.

But when trying to add the credit to Form 540 for California, I'm unable to edit the cell/box and add the value. This would prevent me from getting the proper tax credit for the state return which is unfortunate. Very frustrating after all this work.

[insanit]

The solution is in this thread: https://ttlc.intuit.com/community/state-taxes/discussion/urgently-need-help-with-california-ca-540-f...

Note that once you override that line item you cannot electronically file for federal or state taxes. TurboTax will gladly take your $25 first but then there will be a hard stop. Don’t be tricked like me!

[mostasha]

Thank you for the detailed explanation. I also repaid the signing bonus to my employer last year. Your reply makes it sound like that there are two solutions: a) taking credit b) income reduction using Claim of Rights. 

My first question: Are there any material differences between the two methods? At a glance, taking the Income Reduction in TurboTax Online is a much simpler solution. Am I missing something? Why would one opt for the credit method?

Second question: Going down the path of taking the Income Reduction in TurboTax and Claim of Rights, this deduction is only available under Federal. However, when I entered the full amount that I repaid, it adjusted both my Federal and State tax refunds. Does this mean that TurboTax online automatically accounts for both Federal and State (CA)? 

Thank you for your time in advance.

[DianeW777]

Yes, there can be a difference.  A credit reduces tax dollar for dollar and a deduction reduces income before applying the tax.  The income reduction method is definitely easier and, depending on income level, there may not be a significant difference.

Check your California (CA) return before filing to be sure.  See the information below for the CA return instructions.

• Per CA FTB 540 Instructions for CA specific instructions. 
  • Claim of Right
    • If you had to repay an amount that you included in your income in an earlier year, because at the time you thought you had an unrestricted right to it, 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 take a credit against your tax for the year in which you repaid it, whichever results in the least tax. 
    • If the amount repaid was not taxed by California, no deduction or credit is allowed.
      • Social security benefits are not taxable by California and the repayment would not qualify for claim of right deduction or credit. If you deducted the repayment of Social Security benefits on your federal tax return, enter the amount of the federal deduction on line 16, column B. 
    • If you claimed a credit for the repayment on your federal tax return and are deducting the repayment for California, enter the allowable deduction on line 16, column C.
    • If you deducted the repayment on your federal tax return and are taking a credit for California, enter the amount of the federal deduction on line 16, column B. 

To help you determine whether to take a credit or deduction, see the Repayment section of federal Publication 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations. If you choose to take the credit instead of the deduction for California, add the credit amount on line 88, the total payment line, of the Form 540. To the left of the total, write “IRC 1341” and the amount of the credit.

@mostasha