Was the unemployment compensation received in 2020? If so, did you get a refund from the IRS due to the unemployment compensation exclusion on a 2020 tax return?
@kusaii wrote:
It was received in 2021
Did you repay all of the unemployment compensation you received in 2021?
I'm yet to re-pay all of it yes, not yet though. its in my "over-payment balance" now.
@kusaii wrote:
I'm yet to re-pay all of it yes, not yet though. its in my "over-payment balance" now.
If you repay the any or all of the amount of unemployment in 2021 you will report the income and repayment on your 2021 federal tax return. Use the Unemployment section under Wages & Income in TurboTax. All of the federal taxes withheld will be reported on the 2021 return as a tax payment. You will receive back a percentage of the federal taxes withheld based on the amount of unemployment that was repaid in 2021.
It would make tax reporting simpler if you repay the entire amount in 2021.
Otherwise -
If all of the 2021 unemployment is not repaid in 2021 then on your 2022 tax return you will have to report the amount repaid in 2022. You can then use the Claim of Right to get a tax credit on the 2022 return. This will take some calculations on your part that is outside of the TurboTax program.
See IRS Publication 525 for Claim of Right (I.R.C. 1341) page 36 Repayments - https://www.irs.gov/pub/irs-pdf/p525.pdf#page=36
I understand what you are saying.
I want to mention that the amount of re-payment the department of unemployment is asking me to re-pay is actually without tax. Meaning that although I only received $7900, they are asking me to re-pay is $8800. So even though they deducted 10% taxes when they were sending me money, now they are asking me to re-pay more than what I actually received (since 10% were withheld from everything I received and now somehow they added it to the re-payment)
@kusaii wrote:
I understand what you are saying.
I want to mention that the amount of re-payment the department of unemployment is asking me to re-pay is actually without tax. Meaning that although I only received $7900, they are asking me to re-pay is $8800. So even though they deducted 10% taxes when they were sending me money, now they are asking me to re-pay more than what I actually received (since 10% were withheld from everything I received and now somehow they added it to the re-payment)
That does not sound right, but let me see if someone else has advice on this issue.
@Critter-3 Have you heard of this before?
Ok ... makes perfect sense ... they did get $8800 of unemployment (which is what needs to be repaid) but some was sent to the IRS as withholding and will be reflected on the form 1099-G and they will get it back on their tax return when they file it next year.
So regardless of when I re-pay, when I file my tax return in 2022 I will for sure get all of the taxes I paid for unemployment benefits? which in this case is 8800-7900= $900? and which is why they are making me re-pay 8800 instead of 7900?
Not really ... if you don't finish paying back the entire amount in 2021 you will lose any deduction for the repayment going forward if you repay less than $3000 in a future year. Any repayment in 2021 will be reflected on the 1099-G they issue in January.
And all the withholding that happened in 2021 will be reported on the 2021 return and any excess withholding becomes your refund.
So by default if I receive unemployment benefits and I pay 10% taxes on them, how much percentage of that 10% do I receive back in tax return?
You did NOT pay 10% on the unemployment you only had 10% withheld just like you have withholdings on your paycheck. How much you will get back as a refund depends on the total income you had all year, what your filing status is, what your other credits will be and all the payments you made (like the withholdings) so your question really cannot be answered. Complete the income tax return to see what your bottom line finally is.
Ok I will do that. Thank you for your help! Do I have to wait until January to do the tax return since I need to wait for the 1099?
@kusaii wrote:
Ok I will do that. Thank you for your help! Do I have to wait until January to do the tax return since I need to wait for the 1099?
Yes. You must include the Form 1099-G the unemployment compensation received from the state. The 2021 tax return cannot be completed until January 2022 at the earliest since many of the IRS forms, schedules and instructions have yet to be finalized for tax year 2021.
Sorry just to make sure of one last thing.
I applied for a "Overpayment waiver" with the Ohio department of unemployment and I'm waiting for their decision on that, and I might not get the decision this year. But they will either waive the full amount or they will reject the waiver and I would have to pay the full amount.
So if I dont pay the overpayment this year and I pay it in full next year ($8800 which is greater than $3000), I will still get the full refund of all taxes withheld? just more complex to file the tax return since I would have to do the "Claim of Right"?
The taxes withheld on the 2021 unemployment (along with all the unemployment income) will be reported as payments on the 2021 return and any excess withholding becomes part of the refund on the 2021 return.
The 2022 "right of claim" will reduce the taxes you owe on the 2022 return period. If you will get a refund on the 2022 return depends on all your other 2022 income, credits and withholdings.
Well I'm an employee in a company and taxes get withheld from my paycheck automatically. So I'm assuming the taxes withheld are exact every year and they will stay that way for the coming years.
Therefore, for a 60K yearly income and 25% total taxes withheld, the 2022 "right of claim" would mean that my income for 2022 would be 60K - 8.8K(the overpayment paid back) = 51.2K. which means they would consider that they withheld extra taxes from me since they withheld 25% from 60K not 51.2K, and hence I will get a fair 2022 tax refund of the difference? sorry if its a bit confusing
@kusaii The tax return is a reconciliation of your tax situation. Withholdings from income (especially at the federal level) are almost never "exactly withheld". This is why almost all returns result in a refund or an amount due.
But here is how claim of right works: In 2021, you will claim all of the income and withholdings that are reported to you. Let's assume that in 2022 you end up paying back the entire 8800 because it's not forgiven (and it would behoove you to repay the entire amount if at all possible to do so). In reality, this makes the claim "no longer income" on your 2021 return, but the IRS specifically forbids you to file an amended return for this situation (under Section 1341 of the Internal Revenue Code). Rather, you are either allowed to claim a deduction of the income against your 2022 income (which is only valuable if your 2022 income is greater than your 2021 income and you are already itemizing deductions instead of the standard deduction), or you may claim a credit. To claim the credit, you keep a copy of your 2021 return and run a "what if" amendment subtracting the income you received. You note how much extra refund this would generate, and that is the credit you claim on your 2022 return. Chances are extremely likely that the credit difference is greater than the $900 you had withheld from the original payments. If in 2022 you would normally receive a refund, this credit would increase the refund.
how to report overpaid unemployment compensation you repaid this tax year
If you received taxable income in 2020 and paid all or a portion back in 2021, you qualify for a claim of right repayment.
A claim of right repayment occurs when a taxpayer is required to repay income that they had reported and paid tax on in a previous tax year. The repayment must be of funds that, when received, the taxpayer had a reasonable belief he or she had unrestricted access to.
If you have an amount of $3,000 or less, follow these steps.
If you have an amount of $3,000 or more, follow these steps to report a deduction on line 16 of Schedule A Itemized Deductions.
Payment of an amount of $3,000 or more may also be made by a credit on the 2021 Federal 1040 tax return. Computation of the credit option is outlined here by KristinaK.
My wife got unemployment payments during 2021 and the total amount is showing on the 1099-G.
On 12/30/2021 a decision was made by the unemployment department that she was paid double of what she should have.
We made this repayment on 1/5/2022 (much more than $3,000).
When we report this in TurboTax, do we answer to the question of "Amount of 2021 benefits repaid" as 0 and deal with a claim or do we submit the full amount we already repaid (which was in January 2022)?
No, you don't submit the amount that you paid in 2022 for your 2021 tax return. You will need to enter the amount repaid on next year's 2022 tax return.
@CKO23
If that is the case then TurboTax should change the verbiage of the question to clearly state "Did you pay back in 2021 any of your 2021 unemployment benefits". the current verbiage is misleading.