Claim of Right Adjustment

[RonDab1]

I had to repay $10,000 signing bonus when I left my job.   When I put this amount into TurboTax my Federal Amount owed did not change.   The IRS says that the amount of tax that was paid on it during the previous year is the greater a deduction calculation or a credit.    When I enter this $10,000 amount in TurbTax the amount of federal tax I owe does not change.   This seems to be an error in TurboTax logic, since I should be able to get it as a credit. I have sent the file to TurboTax, token number 1220055.

From IRS Pub 525:

Repayment over $3,000. If the amount you repaid was more than $3,000, you can deduct the repayment as an other itemized deduction on Schedule A (Form 1040), line 16, if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. However, you can choose to take a credit for the year of repayment. Figure your tax under
both methods and compare the results. Use the method (deduction or credit) that results in less
tax.

[DianeW777]

It depends on whether you are using TurboTax Online or TurboTax Desktop.  Please see the information below to utilize either the credit or income deduction.  If you do not have enough itemized deductions then using the deduction may not be helpful.

Claim of Right

• If you had to repay an amount that you included in your income in an earlier year, because at the time you thought you had an unrestricted right to it, you may be able to reduce your income by the amount repaid in the current tax year if the amount you repaid is more than $3,000, or you may take a credit against your tax for the year repaid, whichever results in the least tax. 

Taking the Income Reduction in TurboTax (most common)

1. Login to your TurboTax account or open your tax return.
2. Click on Deductions & Credits
3. Locate the section Other Deductions and Credits (you may first need to select on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop.)
4. Click Start (or Revisit) beside Other Deductible Expenses.
5. A number of questions will appear on the upcoming screens. You are looking for the one that reads Claim of right repayment over $3,000. Click yes when you see this screen. (Be sure to ignore the similar question, repayments of $3,000 or less.)
6. Enter the amount of the repayment in the box Claim of right repayment over $3,000 and click Continue.

Taking the Credit in TurboTax (Must use TurboTax Desktop) - How do I switch from TurboTax Online to TurboTax Desktop?

There are two components to taking the credit in TurboTax. The first part entails determining the amount of the tax that was overpaid in the year the income was received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line D Claim of Right, IRC 1341 credit for repayments of prior year income.
5.  Click on 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.

See the image showing either option.

Please  update here if you need further assistance after you try using the credit.

                    

[Mike9241]

you do not get a $10,000 tax credit if that's the amount repaid, you only get a credit for the income taxes paid on that $10,000. so on what form or schedule did you use and what amount did you enter? 

if you repaid it in the same year as received, box 1 of your w-2 should already exclude the bonus payment so this is no additional deduction on that year's 1040. . if the repayment was in a subsequent year your choice is between an itemized deduction which will not produce any tax benefits unless your itemized deductions exceed your standard deduction.

is line 17 of schedule A greater than whichever standard deduction among the following, based on your filing status,  applies to you? if not there is no benefit from itemizing

single $13850 (note 2)

joint return or qualifying surviving spouse $27,700 (note 1)

head of household  $20,800 (note 2)

married filing separately $13,850 (note 1)

note 1: add $1,500 for age 65 or older or blind, each

note 2: add $1,850 for age 65 or older or blind, each 

***********************

your other option is to recompute your income taxes for the year you received the bonus by reducing box 1 of the w-2 by the gross repayment 

the reduction in taxes for the year you received the bonus is taken on the return for the year in which you made repayment and is entered on schedule 3 line 13b