I had to repay employer in June 2022 for overpayment of wages paid in 2021. Employer refused to issue amended W-2 for 2021. How do I handle this?

[schwangau]

Wages earned in 2022 were less than overpayment.  No mention on 2022 W-2 of overpayment.  How do I handle this?  

[Cynthiad66]

To address your concern specifically, we would need additional information.  However, I hope the information provided will assist you in reporting the repayment.

So when you repay the gross amount that was previously taxed, you are "out" the federal, state, and social security and medicare taxes.  This is what you do next.

For federal income tax:

If the overpayment amount is more than $3000, you can either take a special itemized tax deduction for the amount of repayment, or you can take an IRC 1341 Claim of Right tax credit.

Use this Link for Instructions on using The Claim of Right repayment.

[Mike9241]

the repayment must be $3000 (income amount) or more otherwise any tax benefit is denied . to take the credit if you qualify

recompute the taxes in the year you received the payment by excluding the payment (the gross pay you have repaid) 
the decrease in taxes is taken as a credit on schedule 3 line 12d denote as IRC 1341

[schwangau]

Thank you.  I've done that, but can you tell me WHY the same amount appears as a negative number under unemployment benefits on the 2022 income tax summary?  I've have updated the unemployment questions numerous times and yet TT still shows the overpayment deduction as a negative number under unemployment.  

[DianeW777]

The unemployment benefits would not be affected by this entry on your tax return.  Did you repay unemployment to your state government or wages to your employer?  The information provided is for a repayment of wages which is what you indicated.  

If you had to repay unemployment, some of it may already be adjusted by your state.  If only part of it was repaid in 2022, the Form 1099-G may not have accounted for all of your repayment.  If not, as indicated by @Cynthiad66 and @Mike9241, this repayment must be more than $3,000.

If you repaid wages or unemployment that is greater than $3,000, in 2022,  you can use the 'Claim of Right'.  You can review the link above and I will put the steps below to walk you through your options and how to enter it.

1. 2021: The W-2 should be correct.  The payment and part of the repayment occurred in the same tax year.  The W-2 should have been reduced by the amount of the repayment made in the same tax year.
2. 2022: The balance of the repayment was repaid in a later tax year meaning you did pay tax on that money in an earlier year. 
   • This is known as a 'Claim of Right' and can be used to reduce your taxable income as a deduction or a credit to reduce your overall tax liability on your 2022 tax return because it is over $3,000.

Credit: If you choose to use the credit instead of the income reduction, then you would have to calculate that manually.

• The tax return would have to be completed in the TurboTax CD/Download version if the credit is used.  For assistance with this, see: 
  • How to switch from online TurboTax to the TurboTax software? and TurboTax Prior Year Products.​​​​​​​

1. ​​​​​​​Figure your tax for 2021 without deducting the repaid amount you received in 2022.
2. Refigure your tax from the earlier year (the year you originally reported the income) without including in income the amount you repaid in 2022.
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 2022 figured without the deduction (step 1)
5. Income Reduction Method (most common): If you choose to use the income reduction method you can use the TurboTax Online or TurboTax Desktop.​​​​​​​

Follow the steps below for the method you have selected.

Taking the Income Reduction in TurboTax

1. Login to your TurboTax account or open your tax return.
2. Click on Federal Taxes and then 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

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.