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skwilliamsusnr
New Member

My son has to pay back a military bonus. It has been more than a year and more than $3,000. How can he get back the taxes he paid and what are the steps?

 
2 Replies
ErikT
New Member

My son has to pay back a military bonus. It has been more than a year and more than $3,000. How can he get back the taxes he paid and what are the steps?

Your son will need to file an amended return for the year in which he paid taxes on the income and remove the $3,000 from what he filed in the prior tax year. For explanation, state that he received a military bonus in error and the money has been repaid to DOD, therefore, no taxes are owed on that income.

rjs
Level 15
Level 15

My son has to pay back a military bonus. It has been more than a year and more than $3,000. How can he get back the taxes he paid and what are the steps?

Your son does not amend his tax return for the year that he reported the bonus as income. He claims a deduction or credit for the repayment on his tax return for the year that he repaid it. See "Repayments" in IRS Publication 525, and in particular "Repayment over $3,000" under that. You can read it online at the first link below, or download a PDF of the publication from the second link below.


Repayments (read online)


Publication 525 (download PDF; Repayments is on pages 34-35)


As you can see in the IRS publication, there are two ways of handling a repayment that is over $3,000. He can claim either an itemized deduction ("Method 1") or a credit ("Method 2"). He should try both ways, and use whichever makes his tax lower.


Method 1, the itemized deduction, is easy, and it's covered in the TurboTax interview. But it's an itemized deduction. He will not get any benefit from it unless he has enough other itemized deductions to make his total itemized deductions more than his standard deduction.


Here's how to enter the itemized deduction in TurboTax.

  • On the screen "Your 2019 Deductions & Credits," scroll all the way down to the last section, "Other Deductions and Credits."
  • Click the Start, Update, or Revisit button for Other Deductible Expenses.
  • The first screen asks if you paid any generation-skipping taxes. If you didn't, click No.
  • The next screen asks if you had any "less common expenses," one of which is repayments of $3,000 or less. You repaid more than $3,000, so click No.
  • The next screen asks if you have certain other expenses. Click Yes.
  • On the next screen, enter the total amount that you repaid in 2019 in the second box, labeled "Claim of right repayment over $3,000." Then click Continue.
  • The deduction will appear on Schedule A line 16.

You can use Method 2, the credit, with TurboTax, but there are several complications. Method 2 (step 2) requires recalculating his tax for the year that he reported the bonus as income. TurboTax will not do the calculations for you. Furthermore, if Method 2 works out better, you cannot use TurboTax Online. The credit can only be entered in forms mode in the CD/Download TurboTax software. Also, to refigure his tax for the earlier year he will need the CD/Download TurboTax software for that year, and his .tax20yy file for his tax return for the earlier year.


Because of all these complications, your son might prefer to go to a local tax professional for help. Or if he is still on active military duty, he should be able to get free help from a "MilTax" consultant.


If he decides to do it on his own, here's how to enter the credit in the 2019 TurboTax CD/Download software. Click the Forms icon at the top to switch to forms mode. Open the Form 1040 or Form 1040-SR Worksheet ("1040/1040SR Wks" at the top of the list of forms on the left side). Scroll down, almost to the bottom, to the Schedule 3 section and then to Part II in that section. Look for the Other Credits and Payments Smart Worksheet between lines 12 and 13 (not to be confused with the Other Credits Smart Worksheet between lines 5 and 6 in Part I). Enter the amount of the credit that you calculated on line D of the Smart Worksheet. TurboTax will enter the amount from line D on Schedule 3 line 13, and it will check box d on line 13 and enter the description "IRC 1341" in the space next to that box. The total from Schedule 3 flows to Form 1040 line 18d.

 

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