@emou wrote:
@Opus 17 when you amend in Turbo Tax, do you enter these repayments under Other Deductions and Credits? As a description do you put it as Claim of Right? Thank you!
There are two methods.
1. Special itemized deduction. This is a deduction that is still allowed even after tax reform and is not subject to the 2% rule, but you must already itemize to get the full benefit. It's under other uncommon deductions, there is a question about repayment of wages.
2. Tax credit. This is a direct credit. The amount of the credit is amount that your 2019 tax would have been reduced if you had not received this income. Since you have two credits, you have to refigure your 2019 tax return twice. If you have Turbotax 2019 installed, you can do this (use a copy of your tax return). First, subtract the 2020 repayment, then subtract the 2021 repayment, and see what your tax liability would have been.
For example, suppose your 2019 salary was $150,000 and your tax liability was $35,000. (Your liability is form 1040 line 24, it's the net you paid to the government regardless of withholding and refunds.). Refigure your 2019 taxes by changing your W-2 line 1 to remove the @$13K 2020 repayment. Suppose that reduces your tax to $32,000. That means your credit for 2020 is $3000. Then take out the $27K from 2021. Suppose that reduces your tax a further $8000. That's the credit on your 2021 return.
Once you figure the credit, you enter it as a special adjustment on line 12d of Schedule 3. You will have to do this manually in Forms mode.
If your income, tax bracket and itemized deductions are about the same year over year, the deduction and credit will save you about the same amount of money. If things have changed, you may want to test both procedures. You are allowed to choose the method that saves the most tax.
I don't know anything about claim of right repayments in state taxes. You will have to check over your state tax forms and instructions, or see if Turbotax customer support will help you. (They don't provide tax advice but should help with how to use the program.)
One final note, you can only use the tax credit method if you believed at the time you received the money that you had an unrestricted right to it. That means, for example, if you knew ahead of time that you would probably move and change jobs, then you knew you didn't have an unrestricted right to this money, so you can't use the credit method, only the deduction method.
