You should always file your tax return by the due date if you received taxable income during the year that exceeded the filing threshold for your Federal and/or state return.
Because workers' compensation is not taxable, you will not receive a 1099 or W-2 form for any workers' comp payouts. However, if you're receiving wages, you will receive the appropriate tax forms. See this TurboTax article for more information.
If the incorrect wage income was received but not repaid until the following year, you will be taxed on the additional income which you received even if it was received in error. If the amount repaid this year (2024) is more than $3,000, you may be able to get a credit for that repayment on your 2024 Tax Year return.
If you report the full amount of income you received on your 2023 return, and the amount you had to repay in 2024 was less than $3,000, you can generally report the amount repaid as a negative number in the same income area as the income was reported.
See this TurboTax article on Claim of Right repayments.
A Claim of Right Repayment is a deduction you can take in the current tax year if you’re required to pay back income in excess of $3,000 from a previous tax year that you thought you could keep. You reported and paid taxes on the money, not knowing you’d have to pay it back.
While you still have to repay the money, there are a couple of ways you can get a tax break by reporting the repayment on your current year's tax return:
- Take a simple deduction of the repaid income from the current year’s income (this is the easiest option for taxpayers who itemize their deductions)
- Use TurboTax CD/Download to calculate the amount of tax you overpaid and take a refundable credit
- This is the more valuable option, though it requires a bit more work. More details appear in the article.
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