claim withheld tax back from CA

Forum|Forum|2 months ago
March 28, 2026
2 replies
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I joined a company in Dec 2024 and received a signing bonus that same month (Dec 2024). I resigned from the company in April 2025 and returned the unvested bonus (9-months worth) back to the company (bonus was vested monthly for 12 months). My federal and CA tax were withheld for the entire 12-months worth of the bonus. I should be able to get the credit back for the 9-months worth of withheld federal and CA taxes (since I returned the 9-months worth of unvested bonus). I figured out how to claim the credit back from the IRS, but I have trouble finding the correct line to enter the credit (of IRC 1341 "Claim of Right") for either Form 540 or Form 540 CA . Can anyone help? Thanks.

GreenApple123Author

Level 4

I guess the question is specifically where on the correct CA Forms (540? or 540 CA?) to enter/write the IRC 1341 claim of right credits.

Any help will be appreciated

MaryK4

Level 15

Add the calculated credit amount to Line 78 (the "Total Payments" line). You must write "IRC 1341" and the specific credit amount directly to the left of the total on that same line.

On Schedule CA (540), Part I, Section B, Line 16 (Column B), enter the amount of the federal deduction you took for the repayment. This essentially "adds back" the federal deduction so you can properly take the dollar-for-dollar credit on Form 540 instead.

NOTE: You will not be able to do this with TurboTax online (you may print the return for mail filing and write in the IRC 1341 notation). If you are using the TurboTax Desktop you can make the entries in Forms mode, but you will have to print and mail the returns.

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GreenApple123Author

Level 4

Thanks so much for your reply.

Just want to make sure that I understood your answer correctly by using some numbers. Let's say, my federal credit was $5000 and my CA credit was $1000.

I took the federal credit of $5000 and entered on Federal Schedule 3 Part II Line 13b.

On CA 540, Part II, Line 16 (Column B), I enter $5000 (the federal credit I took); and on Form 540 Line 78 (Total Payments), I will write "IRC 1341 $1000" and manually (by overwriting??) deduct $1000 from my total payment amount?

Also, you mentioned enter the federal deduction on Schedule CA (540) Part I, Section B, Lline 16 (Column B), I assume you mean Part II Line 16 (Column B)?

I am still quite confused! Please help!! Thanks so much!

GreenApple123Author

Level 4

Your federal return looks good, but there are some adjustments to make on your Ca return.

California does not allow a "tax credit" in the same way the IRS does for Section 1341. Instead, California requires you to take a deduction from your income.

The Correction for Schedule CA (540)

Your plan to enter $5,000 on Schedule CA (540), Part II, Line 16, Column B is correct.
This effectively subtracts the $5,000 from your California taxable income.
Note: You use the amount of the repayment (the actual dollars paid back), not the "federal credit amount." If you paid back exactly enough to result in a $5,000 federal credit, ensure the number in Column B represents the gross repayment amount.

The Correction for Form 540, Line 78

This is where your plan needs an adjustment.. Do not overwrite the total on Line 78. California handles the "Claim of Right" differently than the Federal government.

In California, if you are following the "Claim of Right" rules:
Do not add the $1,000 to your withholding/payments line.
Instead, you calculate your tax based on the lower income (after the Schedule CA deduction).
If you still believe you are owed a specific credit amount based on CA's version of the IRC 1341 credit, it is typically handled by recomputing the tax for the year the income was included and taking the difference as a reduction in current year tax.

[!IMPORTANT] California Specifics: Unlike the IRS, the CA FTB often prefers you to simply take the deduction on Schedule CA. Adding manual text like "IRC 1341" to the dotted line is a common practice for federal returns, but on a CA Form 540, it can trigger a manual review and delay your refund if it doesn't match their automated system.

Thanks so much for your reply.

You mentioned "California does not allow a 'tax credit' in the same way the IRS does for Section 1341. Instead, California requires you to take a deduction from your income".

I checked the California Schedule CA Line 16 instruction page 33-34 - Other Itemized Deductions, under Claim of right, it says,

If you deducted the repayment on your federal tax return and are taking a credit for California, enter the

amount of the federal deduction on line 16, column B. To help you determine whether to take a credit or deduction, see the Repayment section of federal Pub. 525, Taxable and Nontaxable Income. Remember to use the California tax rate in your computations. If you choose to take the credit instead of the deduction for California, add the credit amount online 78, the total payment line, of Form 540. To the left of the total, write “IRC 1341” and the amount of the credit.

It does seem to support taking the credit (in additional to use the deduction method)?

Would you clarify? I am really confused.

Thanks