Unemployment Income and Repayment Across Two Years

[k2021b2021]

I started getting unemployment in December of 2023. The state ordered me to repay the unemployment in January 2024 (which I did). I received a 1099-G for 2023 showing the income and tax withholding. Do I enter this as is for my 2023 tax return and deal with the repayment on my 2024 return? I believe this is the answer but looking for confirmation.

[Mike9241]

Yes report what the form shows for 2023.  Now in 2024 there is a catch. to claim a tax credit or itemized deduction for the taxes paid on the amount received in 2023 but repaid in 2024, the repayment must exceed $3000 (Code section1341). if it doesn't you lose out. 

in 2024 you can take as a deduction on schedule A line 16 denote as IRC 1341 repayment OR
recompute the taxes in the year you received the payment by excluding the payment.
the decrease in taxes is taken as a credit on schedule 3 line 13b

(form references are to 2023 forms so they might change for 2024)

[k2021b2021]

Thank you Mike9241

[dazedconfused]

I don't understand what you mean by losing out if the repayment is under $3K? My brother has to repay over $3000 in 2023 unemployment, but some will be repaid in 2023 and some in 2024. His 1099G is not currently showing any of the repayments he made in 2023. Do we just add up those repayments and report it or does the state have to revise the 1099G to include it?

[ThomasM125]

You can deduct the payments you made in 2023 against that year's unemployment income reported on the Form 1099-G only if the repayments belong to benefits overpaid in 2023. The only problem is the IRS will get a copy of the 1099-G form and if you report a smaller amount of income than what is on it, they may send you a notice about it later. It would be best to get them to correct the Form 1099-G if possible. 

[dazedconfused]

Thank you. Unfortunately, he received a penalty for the overpayment and did not appeal it. It's too late to appeal now. He set up a monthly payment plan to pay back the unemployment and the penalty. The state told him all his payments from 2023 were to the penalty and not the overpayment. Hence his 1099 doesn't show any repayment. The actual overpaid unemployment is less than $3K. From what I can tell, this means not only will he pay 2023 Federal Taxes on what he eventually pays back, in 2024 he won't be able to get any credit or deduction for what he pays back in 2024 because it will be less than $3K and for 2023 income. This seems like such a harsh penalty. 

[dazedconfused]

He won't be able to itemize deductions because this would likely be the only thing he has that qualifies.  And maybe a car registration tax, but that is not much at all.