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How do I claim a deduction for a previous years pay that I paid back?

The document I received states "In a prior calendar year you were overpaid by the Department of Defense. The overpayment was established as a debt to the United States and was reported as taxable income in that year. This certifies that during calendar year 2016 you paid the United States a total of $4068.08 toward settlement of your debt.
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RichardG
New Member

How do I claim a deduction for a previous years pay that I paid back?

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it under the claim of right doctrine.  Since the amount of the repayment exceeds $3,000, you have the option of claiming a tax credit instead of taking a tax deduction.  It's a somewhat complex calculation for the credit.  The attached document gives an example of the calculations.

Most taxpayers benefit more from claiming the deduction than the credit.  You can claim the deduction by going to Federal>Deductions & Credits>Other Deductible Expenses.  Proceed through that interview until you reach the question "Do you have any other deductions that are not subject to the 2% limitation?"  Answer yes and enter the deduction on the screen that follows.



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1 Reply
RichardG
New Member

How do I claim a deduction for a previous years pay that I paid back?

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it under the claim of right doctrine.  Since the amount of the repayment exceeds $3,000, you have the option of claiming a tax credit instead of taking a tax deduction.  It's a somewhat complex calculation for the credit.  The attached document gives an example of the calculations.

Most taxpayers benefit more from claiming the deduction than the credit.  You can claim the deduction by going to Federal>Deductions & Credits>Other Deductible Expenses.  Proceed through that interview until you reach the question "Do you have any other deductions that are not subject to the 2% limitation?"  Answer yes and enter the deduction on the screen that follows.



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