Independent contractor that was overpaid by 1 check in 2021

[kjpuzycki]

I have a question about my 1099-NEC for this year.  In 2021, I was overpaid by 1 full check (~4,000$) but I had already submitted my 2021 taxes, as even though I'm independent contractor, I work full-time for this company and get the same salary yearly.  Instead of filing amended return, my company deducted the money from 8 checks in 2022, to pay back the extra check I got in 2021.  

They want to include the money I paid them back for 2021 (~4,000$) on this years 1099, as part of my total wages for this year but I never received that money this year, it went towards the 2021 year when they overpaid me.  Can someone confirm that it shouldn't be included on this years, 2022 1099-NEC, as I didn't physically get that money this year.  It was withheld from my paychecks in repaying 2021.

[GeorgeM777]

In response to the first paragraph in your post, if the funds were given to you in error, and you included those funds on your 2021 return, then you paid tax on those funds.  Even though your company deducted amounts from your wages in 2022, you still paid tax on the funds given to you in error.  Thus, even though you paid back the funds, you probably want to amend your 2021 return to remove the $4,000 amount from wages.  You should also see if you can get an amended 1099 from the company that reflects what you actually made in 2021 (that is, the amount less the $4,000).

In response to your second paragraph, when you say that want to put the money in "this years 1099," do you mean 2023?  If so, then the amount they give you should go on your return for 2023.  If the company gave you the $4,000 in 2022, then include such amount on your 2022 return.  

The question your raise may deal with actual receipt versus constructive receipt.  You have actual receipt of funds when they are given you; however, if you don't have actual receipt of funds, but have constructive receipt, meaning you can control the funds, then you still have reportable income.  

@kjpuzycki

[Opus 17]

The 1099-NEC should only reflect what you actually were paid in the calendar year.  If they overpaid you in 2021 and underpaid you in 2022, that's what the 1099-NEC should show.  That's the law and regulations.  It's not an option for them to fiddle around that way.

If they issue an incorrect 1099-NEC, you are not obligated to report it as income.  There are a couple of ways you could adjust your tax return and only pay tax on money you actually received, although you might get a letter from the IRS asking for an explanation, so save all your proof for at least 3 years (including emails about this issue.)

Another solution, although this is not in accordance with the law, would be to issue a corrected 1099-NEC showing what they claim they should have paid you, to offset the 2022 1099-NEC that shows what they think they should have paid you.  You could then file an amended 2021 return to reduce your reported income and claim a refund of extra tax, that would offset the extra tax you pay on the over-reported 2022 income.  But as I said, that's wrong per the laws and regulations.

I would insist on a correct 1099-NEC showing what you were actually paid in 2022. 

[Mike9241]

please refer to this IRS letter 2001-20

https://www.irs.gov/pub/irs-wd/01-0012.pdf 

particularly this

The wages paid 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 is not entitled to file an amended return to recover the income tax on
these wages.

the following is not correct because  - by taking the repayment as an itemized deduction (subject to the 2 percent floor under Code section 67). this rule was in effect only through 2018  

since the repayment relates to income originally reported as self-employment income it's a business expense reported on schedule C in the year of repayment.