Employer Paid Tuition in 2019. Returned a portion of the reimbursement when I left the company. How should I include this in 2020 tax?

[bunnyteeth]

My employer paid $8,866.91 for tuition in 2019. I left the company in early 2020, before meeting 1-year stay requirement. They took my last 2 paychecks away. Below is the breakdown. 

#1 check

- Income is $1,455.77. Company deducted $180.39 for taxes. Company took back $961.80. The rest of check went to insurance, etc. 

#2 check

- Income is $2,785.61. Company deducted $559.10 for taxes. Company took back $2,226.51.

I was told to try amending 2019 taxes and enter the same info in 2020 tax (haven't file 2020 tax yet) to see which one is more beneficial. But I'm not sure where I can enter the $3189 that the company took back in 2019 tax amendment. I looked at the area to enter 1098T and the "tuition and enrollment fees" box is already pre-filled with last year's amount and grayed out. I'm not able to enter anything. I'm not sure if I should make changes to 1098T form, as turbo tax's advise is to fill it out as it is shown on the form even if it is wrong.

Similarly, where should I enter $3189 on 2020 tax? 

[Mike9241]

if the employer paid tuition was a nontaxable fringe benefit, ie you didn't pay taxes on it, you get no tax deduction for repayment.

if it was included in compensation, you do not amend 2019 since the repayment was not until 2020.

for 2020 your choice:

1) deduct the repayment on Schedule A in the section for other itemized deductions.  if you can't itemize you get no benefit under this method

2) recalculate the tax for 2019 as if the repayments had been made in that year. the difference between the original taxes and revised taxes is a credit to claim in 2020 on schedule 3 line 12d - describe as "IRC 1341"

[bunnyteeth]

So for 2019, I got both $5250 for tax free tuition and another $3600 for taxable tuition reimbursement. The $3189 I had to repay was from the taxable tuition reimbursement. 

1. Do I search for Schedule A in turbotax software? (Sorry, a newbie when it comes to filing taxes so I'm not sure where I should go to find Schedule A)

2. If I recalculate the tax for 2019, I should subtract $3189 from my AGI  or total taxable income? Turbotax lists these two on my tax return, which have 2 different amounts, so not sure which one I should use.  Also, where do I go in turbotax software to find Schedule 3?

[AmeliesUncle]

Does your W-2 for 2020 show the FULL amount of your pay (before the repayment)?  Or does it show a reduced amount to compensate for the repayment?

[bunnyteeth]

My W-2 for 2020 shows the full income. It does not deduct the repayment amount from the gross pay. 

[bunnyteeth]

Hello,

Can I get an update on my question please?

[Hal_Al]

 This situation is described in IRS Publication 525.  If the amount is more than $3000, you can take a itemized deduction, on line 16  of schedule A (not subject to the old 2% of AGI rule) or  you can take a credit. The credit is computed by re-figuring the tax 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.  TT does not do the credit calculation or compare it to the alternate deduction. You have to do that manually. You enter the credit in the forms mode (the forms mode is not available in the on-line versions of TurboTax [TT]). All entries that seem like you should be able to enter on Form 1040 or Schedules 1 through 3 have to be entered on TurboTax's 1040 Worksheet. Scroll way down to Other Credits and Payments Smart Worksheet. Select item D, claim of right under IRC 1341 for repayments. It ends up on line 13 of schedule 3.

 So, the taxpayer  has the option of either claiming the credit or deducting the repayment as an other itemized deduction, whichever provides the greater benefit.  But, you cannot file an amended prior year return.  If the amount is less than $3000, there is no tax relief available.

[bunnyteeth]

Thank you! I'm re-figuring the tax from the previous year as if the income had not been received, but for the previous year, Turbotax has 2 incomes listed: AGI and taxable income. Which one should I use to do the calculation?

[Hal_Al]

Taxable income.