Should I indicate I was required to repay unemployment benefits, even though I have not done so and instead filed an appeal?

[jimmehgeebs]

I received unemployment benefits in 2020, and received a letter in December 2021 saying I was overpaid the full amount and need to pay it back. I submitted an appeal, haven't heard anything back yet, and don't expect to for several months. I'm not sure what to do.

[MaryK4]

If you have not made any repayments yet, you do not include them on your tax return for 2021.  Since you are still in appeals, it is not finalized yet. 

[Rhonda23675]

I had unemployment in 2020 paid taxes on it in 2020 and in 2021 had to start paying it back.  Do I get to reflect this on the 2021 tax return?  

[RaifH]

Yes, if the amount that of unemployment you repaid in 2021 was over $3,000. This is called a claim of right repayment. You paid taxes on income that you reported assuming it was yours to keep and did not know you would be required to repay it in a future year. Please note that if your unemployment was less than $10,200, it was not taxable in 2020 and therefore you would not be able to claim any deduction or credit this year if you did not pay tax on the income in 2020.

It can be reported on your taxes in one of two ways, you can choose whichever is more beneficial to you. The first method is as an itemized deduction this year:

1. Select Federal, then Deductions and Credits
2. Scroll down to Other Deductions and Credits (you may need to select See All Tax Breaks and/or Show More)
3. Scroll down to Other Deductible Expenses and select Start (or Revisit)
4. Answer the questions until you get to the Did you have any of these other expenses? screen.
5. Select Yes
6. On the Tell us about your other expenses screen, enter the amount of the repayment in the Claim of right repayment over $3,000 box and select Continue

The second method is to determine how much you paid in tax on the amount of the repayment. To do this, you would reduce your taxable income in 2020 by the amount you repaid in 2021 and then calculate your taxes in 2020. You can take a credit this year for the difference between the taxes that you paid and the taxes you would have had to pay had you never got the payment in the first place in 2020. To do this, you will need TurboTax Desktop for 2021:

1. Return to the current tax year (The credit can only be applied using the Forms mode in the TurboTax CD/Download product)
2. Select the Forms icon
3. Choose 1040/1040SR Wks from the list on the left and the worksheet will appear.
4. Scroll down to the Other Credits and Payments Smart Worksheet (you can find this in a box near the end of the worksheet)
5. Enter the credit amount you calculated on Line E, Claim of Right, IRC 1341 credit for repayments of prior year income

@Rhonda23675