How to do this? Employer overpaid in 2019. I repaid in 2020. W2c covers SS & FICA. They state: Report credit on 12d, Sched 3 of 2020 return. Label: IRC1341 on the entry.

[louis-marx]

So my employer overpaid at the end of 2019 - they made me repay the overpay amount + federal income tax  that they sent to the IRS . the W2c they sent only adjusted SS tax and FICA. They di NOT reduce the amount of income on my 2020 w2 at all. Thus, they have told me to do this: "The credit is reported on line 12d, Schedule 3 of your 2020 tax return. You should label this “I.R.C 1341” on the entry line. See the highlighted section of the attached draft 1040 instructions on page 102. You should be able to do this in Turbotax." I have done multiple searches and can not figure out how to accomplish this in Turbotax. Please help.

[LenaH · Accepted solution]

You could use a "claim of right" Section 1341 credit, but only if the repayment was more than $3,000. This is a federal tax credit for taxpayers who reported income in the previous year, but have to repay the income because it was paid in error. The Section 1341 credit is found on your 1040, Schedule 3. 

For the method on how to calculate your amounts for Schedule 3, please see Publication 525 and go to page 35. Please keep in mind that these Section 1341 credits do tend to get audited, so it is important to keep all of your documentation in order in case the calculations get questioned. 

This credit is available on the state side as well. However, I am not sure which state you allocated the bonus with on your three state returns, so I would be able to instruct you with the state side of your question once I know the allocation used. 

To enter, please follow the instructions below:

1. Open your return.
2. Click on Federal.
3. Click on Deductions and Credits.
4. Scroll down to Other Deductions and Credits and Click Start next to Other Deductible Expenses.
5. Answer Yes to the question Did you have any of these other expenses?
6. Enter the amount in Claim of repayment over $3,000.

I have attached screenshots below for additional guidance. 

[Gravis]

This answer does not offer a Turbo Tax process for working a CREDIT versus a deduction!!!

You need to show how TT would allow one to complete a Schedule 3 to the F1040!!

[DianeW777]

There is a possibility that the credit could be more effective.  Provided here are the steps in case you would like to try this to see which action is best.  Keep in mind you must have a repayment greater than $3,000 to choose either method.

Taking the credit in TurboTax (less common)

There are two components to taking the credit in TurboTax. The first part requires determining the amount of the tax that was overpaid in the year the income was actually 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 E Claim of Right, IRC 1341 credit for repayments of prior year income.  (Schedule 3 and zoom right to the worksheet and easily entered)

   • You can choose to change to TurboTax Basic CD/Download if you choose.

     • How to switch from TurboTax Online to TurboTax CD/Download?​​​​​​​

Taking the Income Reduction in TurboTax (as indicated by our awesome Tax Expert @LenaH

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 click on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop version.)
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.

@louis-marx