How to claim IRS 525 tax exemption

[DoninGA]

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@acashaw wrote:

retirement depends on disability while serving.

how do I claim exemption on 1099r income?

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This issue has been discussed extensively on this thread.  What exclusion are you referring to in regards to your pension payments?

As already been posted -

Under normal circumstances, the Form 1099-R issued to the veteran by Defense Finance and Accounting Services correctly reflects the taxable portion of compensation received. No amended returns would be required, since it has already been adjusted for any non-taxable awards.

If needed, veterans should seek assistance from a competent tax professional before filing amended returns based on a disability determination. Refund claims based on an incorrect interpretation of the tax law could subject the veteran to interest and/or penalty charges.

[wlafay]

I received a letter from my long term disability company subject reading: "Notification of repayment/refund data for income tax purposes. In the body of the letter it states..."You received overpayments of disability benefits under your employer's group and you returned part or all of the overpayments to us in 2023. The "taxable" amounts of the overpayment you returned to us in 2023, which is applicable to payments you had received prior to 2023, are shown on the reverse page. If you included the overpayment of disability benefits received on your prior years' federal income tax returns, you may be able to take a credit or deduction in the tax year of repayment for the repaid amounts. Please consult with tax advisor to refer to IRS publication 525 "Repayments" before taking any action. For more info reference page 37 of IRS Publication 525. 

So what I'm trying to figure out is how do I data enter this information onto the information I already have in my TurboTax account for 2023.

[DaveF1006]

You would enter these as other deductible expenses. You can enter an amount of $3000 or less by going to:

1. Go to federal>deductions and credits
2. Other deductions and credits>other deductible expenses
3. Scroll past the first screen and in the second screen, you may enter a social security payment of $3000 or less.

If the repayment is more than $3000, you would enter the amount into the third screen as claim of right of repayment over $3000. This is how to take the deduction in Turbo Tax.

To take the credit, you would need a Turbo Tax Software product to take the credit because you will need to enter this on the form..

1. Sign in to your account.
2. Select the return for the year you received the money (For example, if you're repaying money you received in 202, open your 2023 tax return).
3. Select Save As in Windows or Copy in Mac to save a copy of the return. This is the form you'll be working in for this part.
4. Select Forms in the upper-right corner.
5. Select Form 1040 from the list on the left to open the form (or Form 1040-SR, if applicable).
6. Find the Total Tax line and make a note of this number.
7. Adjust the income you originally reported by subtracting the amount you repaid. For example, if you reported $50,000 in income, but had to repay $9,000, you'll adjust the income to $41,000.
8. After you enter the updated income, TurboTax will automatically calculate your updated tax liability. To determine your Claim of Right Credit, subtract the amount of the updated tax liability from the original tax liability.

Next, you’ll apply the credit. To do this, you’ll need the current year of TurboTax CD/Download.

Applying the credit

1. Return to the current tax year (The credit can only be applied using the Forms mode in the TurboTax CD/Download product).
2. Select the Forms icon.
3. Choose 1040/1040SR Wks from the list on the left and the worksheet will appear.
4. Scroll down to the Other Credits and Payments Smart Worksheet (you can find this in a box near the end of the worksheet).
5. Enter the credit amount you calculated on Line D, Claim of Right, IRC 1341 credit for repayments of prior year income.
6. Select 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.

As you can see, taking a credit involves more work but does provide a refundable credit. The deduction can only be taken if you itemize deductions for the year