In order to file an amended return, he would have to be issued a corrected 1099-MISC first, for the year he was overpaid and for which he would be amending for. If you issue a corrected 1099-MISC, then you too will have to file amended returns.
Otherwise, if they just give back the overpaid amount in 2016 with no corrected 1099-MISC, then that's considered a 2016 transaction of which the payer can deduct from their 2016 income, and the receiver has to claim as 2016 taxable income. This could change the tax bracket of one or both parties involved in the transaction, and could also change the qualifications for both or either party, for tax breaks they would otherwise qualify for.
Generally, if you are issuing a corrected form for a prior year (2014 or earlier in this case) then the issuer is subject to fines and penalties for not getting it right by the original filing deadline. The fines and penalties isn't always true though, as it just depends on the specific situation.
For the purposes of this specific thread though, it would probably be most cost effective to treat the payback of the overpayment as a 2016 transaction so that no corrected forms have to be generated and submitted at all. But only the original poster can determine what is best for their specific tax situation.
in error in the prior year remain taxable to the employee
for that year. This is because the employee received and
had use of those funds during that year. The employee
isn't entitled to file an amended return (Form 1040X) to re-
cover the income tax on these wages. Instead, the em-
ployee is entitled to a deduction (or credit in some cases)
for the repaid wages on his or her income tax return for
the year of repayment.
This situation is described in IRS Publication 525. pgs 34-35. You can take a misc itemized deduction, on line 28 of schedule A (not subject to the 2% of AGI threshold*) Or you can take a credit. The credit is computed by re-figuring the tax return from the previous year as if the income had not been received. Then the difference in tax is claimed as a credit on the current year's return. In the forms mode (the forms mode is not available in the on-line versions of TurboTax[TT]), you can use the line 73 smart work sheet to enter the credit amount on line 73; select item D, claim of right under IRC 1341 for repayments. TT will enter "I.R.C.1341" on the line next to box d on line 73 of form 1040. TT does not do the calculation or compare it to the alternate deduction.
So, the taxpayer has the option of either claiming the credit or deducting the repayment as a miscellaneous itemized deduction, whichever provides the greater benefit. But, you cannot file an amended prior year return.
*If the amount is $3,000 or less, only the miscellaneous itemized deduction is allowed and is subject to the 2% of AGI threshold; it goes on line 23 (instead of line 28) of schedule A.
You cannot amend the previous year return. It would be incorrect for the payer to issue a corrected 1099-Misc, for a previous year, if the money was repaid in the current year.
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