Unemployment Overpayment

[BigAlStud]

Hoping someone can help me.  In 2022, I received $3,300 in unemployment benefits due to being laid off.  Now, TWO YEARS LATER, the state is coming back to me saying, as I received a severance package, I was not eligible for those benefits.  And, not only am I required to pay them back, I must pay back the full $3,300.  However, I paid federal taxes on that $3,300.  Unfortunately for me, my income was much higher in 2022 than it is today.   Is there anyway I can recoup the taxes I paid on that $3,300?    Thank you.

[DawnC]

You can take a Claim of Right credit.   That link has full instructions.   You will need to figure out what your tax liability would have been without the income, and take a credit for the difference between what it really was with the extra $3300 and what it should have been.    You will need the desktop program in order to take the credit.   

[Mike9241]

Yes. You can get back all the taxes you paid on the money. Since the amount repaid is more than $3,000. the code contains a relief provision under IRC 1341

recompute the taxes in the year you received the payment (2022) by excluding the payment.
the decrease in taxes is taken as a credit in the year you made the repayment so if it was 2024 you'll have to wait until you file the 2024 return in 2025. if you repaid in 2023 the credit is taken on the 2023 schedule 3 line 13b  

keep a copy of the revised return (PDF) but do change it back so there are no issues should something arise concerning the 2022 return. you can not amend 2022 for this repayment.