Ok, so this is going to be a little long to explain.. When COVID hit, I had applied for unemployment on my business that I had literally just started. Well, time went by, and I sold my condo, separated from my husband, and was going from hotel to hotel, so I had no permanent address, until I did. Moved into my house in November of 2020, and in April the following year, I received a letter from unemployment asking if i was going to continue my benefits and if i was to ... so I called them, by the end of the phone call with them I had $22,000 and some change in my account and then from April to September I received a payment every week. Now, when all was said and done i filed taxes with my husband and the tax girl told me I did not have to file taxes on the unemployment. Ok, she would know right..? Some time late,r I received a letter from IRS and Unemployment saying that we owe them $4,000 and some change in taxes for the unemployment, and Unemployment sent me a letter saying I was not supposed to receive benefits and that i owe them that money back. No theyre saying I owe them $16,700 in overpayments, and the IRS wants the $4000 in taxes from the unemployment that was not filed. How is it that they can do that ? If there were no unemployment, there'd be no taxes. If I have to pay unemployment back, I am not paying the IRS or vice versa. I am not paying both of them back. Am I right? And how is it that they can pull this bcuz they have already started garnishing my tax refund !! Please give me some advice or information, or even let me if I am wrong
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Your situation is unclear. If you received the UC payments and repaid them in the same year, you do not owe the income taxes. If this occurred in different years, you owe the income taxes for the year received. In the year repaid, recompute the taxes for the year received by excluding the repayment. The decrease in taxes is taken as a credit on Schedule 3 line 13b. These are the rules under IRC 1341. You may need the help of a tax pro. The 2020 TuboTax app is no longer functioning to allow you to do the recalculation. Another complication could arise if you will be making the UC repayments over a period of years. You can only take the credit for the amount actually repaid. and it must be more than $3,000 for that year. Thus, this would require multiple recalculations for 2020 taxes and claiming the repayment credit over multiple years.
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