Question about: Claim of right repayment over $3,000

I have this situation -- I had to repay in 2016 an overpayment that my employer made in 2015. I save more money by claiming the credit than by claiming the deduction.

Does anyone know how I can apply a credit to my Maryland state return? I can't find anyplace to enter it in TurboTax. Do I need to file an amended 2015 Maryland return?

I rent my house for a total of 15,600.00. It all went toward the mortage. Can I claim as repayment?

If you received income in a previous year that you were believed you were legitimately entitled to, and then had to pay it back in 2015, there are two methods to deduct that from your income.  If the amount was less than $3000, it is a misc deduction subject to the 2% rule, so many people will not benefit.

If the amount of repayment is more than $3000 you have two methods to deal with the repayment.  One is to deduct the income as a misc itemized deduction NOT subject to the 2% rule.  The other method is to figure out how much less income tax you would have owed in the year you received the income, and take that amount as a direct tax credit instead of a deduction.  If you earned over $50,000 and have more than $6200 (single) or $12,400 (joint) of itemized deduction, then both methods will have the same result.  But if you don't normally itemize your deductions, or if your income this year is much less than the year you got the income, then the direct credit may save you more money.  This is the claim of right credit.

One caveat to Opus17, be mindful of changes in tax brackets. If you are in a lower bracket this year due to tax regulations then taking the credit will be more helpful than deducting income in mics itemized deduction.

When I fill in the claim of right deduction over 3,000 in the "deductions and credits" section, turbotax online is populating an : Unemployment and paid family leave (1099-G) for the same amount in the income and expenses section. Is this a bug in the software?

Best,

MM

This issue will be resolved when the forms are finalized.  For current information on forms availability, please click on this link:  Federal forms availability

This issue still has not been fixed.  When will it be fixed?

Was this issue ever resolved in software?

If you repaid amounts reported as income in the prior year -

----- if the amount is $3,000 or less, it is a miscellaneous itemized deduction subject to the 2% limitation.
----- if the amount is more than $3,000, it is a miscellaneous itemized deduction which is not subject to the 2% limitation.

If the amount was received under a "claim of right" (you had unrestricted use of the funds but later found out you didn't), you have one more choice:  if the amount is more than $3,000, you can choose instead to claim a credit for the additional tax incurred by reporting the repaid amount in income.  See IRS Publication 525 for an explanation of that method.  It is available at:  http://www.irs.gov/publications/p525/ar02.html#d0e9279

Look under deductions and credits, then other deductible expenses, then less common expenses if the amount is under $3,000. 

Turbotax on-line does not support the "claim of right" computation.  Turbotax desktop, in the forms mode, permits the credit to be entered in the "smart worksheet" , but you still would need to compute it manually.

i'm having this issue too - i had an overpayment of $4800 in 2020, that I paid back in 2021. I'm following the deductions guidelines but it keeps defaulting to unemployment taxes which is incorrect and then triggering me to enter a 1095A when my employer paid my health insurance

I entered the deduction with no problem so let me tell you and show you what I did.

1. Go to Federal
2. to Deductions and Credits
3. Scroll down to Other Deductions and Credits
4. Select Other Deductible Expenses
5. Generation skipping, select NO
6. Less Common, select NO
7. Tell Us about your other expenses, fill in the amount you repaid in the second box where it says "Claim of right repayment over $3,000"
8. click Continue
9. Congratulations screen
10. click continue

@austhokie

i did that and it shows under deductions and at the same time then a matching amount to that deduction gets added to my income in the form of an unemployment wage and shows as negative (so -4805) - if I delete it from the wages, then it removes the deduction that was added

Thank you for clarifying. I have submitted it to the investigations team.

@austhokie

Did you ever get a response on this?  I have the same issue in 2022 - i can enter but offsets on the unemployment line. 

Did you find another solution??

tia!

I went through the deduction steps again today using both online and desktop versions and do not have the unemployment showing up. Investigations is done and things should be working for you. There have been lots of software updates. Personally, I am not a fan of the deduction since so many people do not itemize. The credit is generally better but can only be used on the desktop version.  These are the desktop steps- if you repaid more than $3,000:

1. Figure your 2020 tax as normal, without deducting the repaid amount.
2. Locate prior year taxes that are now incorrect. Note the amount of tax liability.
   1. Refigure your tax from the earlier year(s) subtracting the income that you have repaid.
   2. Subtract the difference in tax liability for the year.
   3. The difference is your 2020 credit allowed. This is your right of claim credit. 
   4. This becomes a credit on your return labelled as IRC 1341. This is schedule 3, line 12d.

Use the desktop program, online version does not support this credit. If you are online, easy to switch.   

• If you are online user, and have not purchased your software, simply buy the desktop version and download your .tax file so you don't have to do your taxes again. Any trouble, call support, link below. Here are desktop options.
• If you have paid for your online taxes, call support and tell them the desktop program is required.
• Please use the following link for a customer support number.

Please see example and full details in my other post.- change the dates mentally since the post is older.

@richardggonzo

This continues to be an issue. I am using the 2021 Dsktop Premier version. I repaid over 3k of wages back. Since I am itemizing a deduction works better for me then a credit. However when I enter the Claim of right repayment over $3,000 in the interview (under other deductions), it falsely shows a negative number (implying repaid amount) under Wages and income -> Unemployment and Paid Family Leave. The amount I repaid is NOT for unemployment repayments or family leave, it's wages being paid back. Is this a bug? How can I address this prior to submitting my returns? What "backend" items or forms would this generate?

First please confirm you used the following steps to enter your 'Claim of Right' repayment.  If this is how you entered the amount, you can file your tax return without concern.  Keep in mind this is only allowed because it is more than $3,000 and it is a deduction to income if you can itemize deductions.  You do have an option to claim a credit against your tax instead of trying to use the deduction (it has been referenced in this thread and is posted below for your convenience.

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 click on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop version.)
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.
7. Once completed your return will show the negative adjustment to your income.

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 Desktop 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 2020 without deducting the repaid amount.
  2. Refigure your tax from the earlier year (the year you originally reported the income) without including in income the amount you repaid in 2021.
  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 2021 figured without the deduction (step 1)

Taking the credit in TurboTax (less common)

There are two components to taking the credit in TurboTax. The first part requires determining the amount of the tax that was overpaid in the year the income was actually 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 E Claim of Right, IRC 1341 credit for repayments of prior year income.  (Schedule 3 and zoom right to the worksheet and easily entered)

@arsdean 

[Edited: 03/29/2022 | 1:48p PST}

Thanks Diane, yes I can confirm that I followed the correct steps to enter the right of repayment over 3K (deduction) into turbotax. However the amount still appears erroneously as a negative value under Wages and Income section -> Unemployment -> Unemployment and Paid Family leave. This is obviously incorrect since the amount that I repaid is wages/income that was paid to me in a previous year (and not unemployment benefits). Why is the software categorizing it as such? Seems like a bug? Should I check any forms in the forms view to ensure that there is no bad entries created that miscategorize the amount? Thank you!

Are you able to view the claim of right payment on line 33 of Misc Dedns in FORMS?  Or is the payment reflected on Earned Inc Wks?

Please confirm.

In TurboTax Desktop Premier version, I am able to enter a claim of right payment in excess of $3,000 at:

• Federal Taxes / Deductions & Credits / I'll choose what I work on / Other Deductions and Credit / Other Deductible Expenses.
• Click Start / Update to the right.
• At the screen Tell us about your other expenses, report the expense as Claim of right repayment over $3,000.

I am itemizing so it shows up on Schedule A, line 16 (Other Itemized Deductions section) and the line that it adds is called "Claim Repayments" and has the correct repayment amount next to it. Is this correct?

Yes. If you are entering your repayment as an itemized deduction, it will appear on Schedule A, Line 16. 

@arsdean

I am having the same issue. Is that mean I should not worry if my bonus repayment amount shows up in the appears erroneously as a negative value under the Wages and Income section -> Unemployment -> Unemployment and Paid Family leave ?

Hello all,

after several different replies and two direct conversations, I was able to confirm that it’s the user turbo tax  interface that does not reflect the accurate claim of right.    The actual tax schedules show the deduction in my schedule A.  I  went  through my returns with an expert who could see the forms, and confirmed it.   When I actually paid and before I filed , I saw credit  applied properly on my itemized deductions.  

Thank you for confirming this! I am going through this same scenario. Sign on bonus repayment. Taxes paid for it in 2021. But, paid back porition of it in 2021. When I use the Turbo Tax (online, not desk top), it shows up as 1099-G on the over view page. Do you know if for 2023, after I pay/submit, will it show up as NOT 1099-G and as the correct line / form. As you can imagine, I do not want to have a 1099-G form!! And I hate not having access to the forms until after I submit. Ugh!