Increased Income/Taxes and Repayment of Severance

[Nagyde]

I have been using TurboTax for 10+ years and have a question regarding severance repayment and associated accounting

My job was eliminated in November, 2018 and I received a severance package amounting to ~9 months of pay (one month for each year of employment).  

I requested the severance payment be deferred to January, 2019, to avoid the Tax nightmare, however the request was declined and I received the severance check in December, 2018 which bumped my and my wife's 2018 income into a higher Tax bracket for the year.

In early 2019, I was rehired and asked to repay 6 months of severance; which I did. Although I have asked my employer to adjust my 2019 W2 to reflect/deduct the repayment of severance, I have a number of questions:

1. Can I submit amended/revised 2018 returns to account for the repayment of severance (although it was not repaid until February, 2019)?

 2. I assume that showing the repayment  on my 2019 W2 will not allow for us to capture the ~3+% we had to absorb/pay on our total 2018 income due to being bumped up to the higher Tax brackets. How can I correct these issues?

3. Any other advice?

Thank you for your time and consideration to this matter.

[DianeC958]

1) You can file a Claim of Right on your 2019 tax return since that is they year that the money was repaid.

Claim of Right for Repayment over $3,000

On TurboTax, you will go to the

•  Federal Taxes,
• Deductions and Credits 
•  Other Deductions and Credits
• Other Deductable Expenses

First question about Generation-Skipping taxes No

Second Question Any Less Common Expenses No

Third Question Second Option put the amount of the Repayment if it was over $3,000

Method 1.

Figure your tax for the year of repayment claiming a deduction for the repaid amount.

Method 2.

Figure your tax for the year of repayment claiming a credit for the repaid amount. Follow these steps.

1. Figure your tax for the year of repayment without deducting the repaid amount.
2. Refigure your tax from the earlier year without including in income the amount you repaid in the year of repayment.
3. Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
4. Subtract the answer in (3) from the tax for the year of repayment figured without the deduction (step 1).

If method 1 results in less tax, deduct the amount repaid. If method 2 results in less tax, claim the credit figured in (3) above on Form 1040 or 1040-SR. (If the year of repayment is 2018, and you're taking the credit, enter the credit on Schedule 3 (Form 1040 or 1040-SR), line 13, and see the instructions for it.)

This is how to make the claim on your return.

[Nagyde]

Thank you for the prompt response. As I am traveling, I will review this approach/option (and impacts on potential return) in the next 2-3 days.