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ppykosh
New Member

I am paying back a former employer for income already received in precious tax years. Taxes were already paid on this income. How do I handle this for my tax return?

 
2 Replies
Hal_Al
Level 15

I am paying back a former employer for income already received in precious tax years. Taxes were already paid on this income. How do I handle this for my tax return?

Repayments. This situation is  described in IRS Publication 525. pgs 34-35.  You can take a  misc itemized deduction, on line 28 of schedule A (not subject to the 2% of AGI threshold*) Or you can take a credit. The credit is computed by refiguring the tax return from the previous year as if the income had not been received. Then the difference in tax is claimed as a credit on the current year's return.  In the forms mode (the forms mode is not available in the on-line versions of TurboTax[TT]), you can use the line 73 smart work sheet to enter the credit amount on line 73; select item D, claim of right under IRC 1341 for repayments. TT will  enter "I.R.C.1341" on the line next to box d on line 73 of form 1040. TT does not do the calculation or compare it to the alternate deduction.

So, the taxpayer  has the option of either claiming the credit or deducting the repayment as a miscellaneous itemized deduction, whichever provides the greater benefit*. But, you cannot file an amended prior year return. 

*If the amount is $3,000 or less, only the  miscellaneous itemized deduction is allowed and is subject to the 2% of AGI threshold; it goes on line 23 (instead of line 28) of schedule A.

https://www.irs.gov/publications/p17/ch12.html#en_US_2016_publink1000172015

You say you are "paying back" as opposed to you paid back. You may only deduct (or take a credit for) what you actually pay back this tax year. if  the payments run over to another year, you will have to deduct that amount the following year

dogfeste
New Member

I am paying back a former employer for income already received in precious tax years. Taxes were already paid on this income. How do I handle this for my tax return?

Is there any easy, straightforward way of re-configuring my tax liability for 2019 minus the Repayment made in 2020?  I'm trying to figure out whether I should take the Credit or Deduction.

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