Unemployment Overpayment

[smsprauer]

I have been informed that I was overpaid unemployment in 2020.  When I filed I told them to take out 10% for taxes.  They want me now to pay back the overpayment but how does this work when I've already paid taxes on it.  Say I overpaid $2,000 and paid $200 in taxes.  Do I only pay back $1,800?  If I pay back the full $2,000 how do I get back the $200 I already paid in taxes against that amount?  

[MinhT1]

The taxes withheld in 2020 are reported in box 4 of your form 1099-G and are entered on your 2020 tax return and you will get the full credit of the taxes withheld in 2020.

When you repay the overpayment, you'll have to repay the gross amount (in your example $2,000). You can only claim this repayment only in the year you actually repay the amount.

[smsprauer]

So in 2021 when I do my 2020 taxes the repayment will look like a -$2000 on my income thus reducing my AGI.  So I'll get back what I've already paid in taxes to that overpayment.  Does that sound right?  I thank you.

[LenaH]

No. Since your unemployment compensation repayment will be less than $3,000 and you are repaying it in a subsequent year, there is no tax benefit available. 

Per IRS Publication 525, if you repay unemployment compensation that was included in income in an earlier year, you can deduct the amount repaid on Schedule A, as long as you itemize and the repayment amount is over $3,000. 

For more information, please see IRS Publication 525 and go to page 27. 

@smsprauer

[t231]

In the scenario where you were overpaid $600 in UI benefits in 2020 and paid it back in 2021 there is no tax benefit available in that situation? You don’t enter it anywhere on your tax filing?

[DMarkM1]

That is correct.  Additionally, up to $10,200 of unemployment benefits paid in 2020 were excluded from taxable income; so not taxed anyway.

[t231]

Thanks @DMarkM1. Just to clarify, I understand the $10,200 was excluded however the $600 included in my income in 2020 wouldn’t have made a difference regarding how much I owe in taxes? 

[LenaH]

If you had under $10,200 in unemployment, then the $600 you had to repay would not have been taxed on the federal level. It may have been taxed in your state (depending on where you live). However, you usually cannot deduct repayments on the state level if they are under $3,000. 

@t231

[t231]

Thanks @LenaH. I had over $10,200 in UI income for 2020. I am in NY state. 

[LenaH]

For New York State, you must have a claim of right on your federal tax return that was subject to New York State taxes in the prior year in order for the Form IT-257 to be populated. Since you cannot complete a claim of right on your federal return due to the amount being under $3,000, then you cannot take the deduction on the New York State return.

For more information, please see IT-257 Instructions.

@t231

[t231]

@LenaH So turbotax did ask whether i repaid any unemployment income in 2021 from a previous yr. I said yes, $600, however it did not show up anywhere on my return. Is that correct because it was under $3000? It shouldnt be listed anywhere on the return?

[JillS56]

That is correct.

[kluckett]

May I jump in on this to ask a question? I received unemployment in 2020, in 2021 I was informed they had made a mistake and to no fault of my own I shouldn't have received anything. In 2022 I got a 2nd job and paid back $13,000. How should I address this for my 2022 taxes?