Why won't the website credit me for my claim of right for a repayment of $3,125

[seanbernhardt40]

Repaid $3,125 in unemployment benefits from 2023 repaid in 2024

[DianeW777]

Please keep in mind that as a deduction this will increase your itemized deductions but will not directly reduce your income. A credit can reduce your tax if you choose that method.  Let's make sure you made the entry the way it needs to be done. 

Since your repayment is greater than $3,000 you have two options (option 2 is most common).

1. Credit: If you choose to use the credit instead of the income reduction, then you would have to calculate that manually.
   • The tax return would have to be completed in the TurboTax Desktop version if the credit is used.  For assistance with this, see: How to switch from online TurboTax to the TurboTax software? and TurboTax Prior Year Products.
     1. ​​​​​​​Figure your tax for 2020 without deducting the repaid amount.
     2. Refigure your tax from the earlier year (the year you originally reported the income) without including in income the amount you repaid in 2021.
     3. Subtract the tax in (2) from the tax shown on your return for the earlier year. This is the credit.
     4. Subtract the answer in (3) from the tax for 2021 figured without the deduction (step 1)
2. Income Reduction Method (most common): If you choose to use the income reduction method you can use the TurboTax Online or TurboTax Desktop.​​​​​​​

Follow the steps below for the method you have selected.

Taking the Income Reduction in TurboTax

1. Login to your TurboTax account or open your tax return.
2. Click on Federal Taxes and then Deductions & Credits.
3. Locate the section Other Deductions and Credits (you may first need to click on show all tax breaks if working online or I’ll choose what I work on if working in the installed desktop version.)
4. Click Start (or Revisit) beside  Other Deductible Expenses.
5. A number of questions will appear on the upcoming screens. You are looking for the one that reads Claim of right repayment over $3,000. Click yes when you see this screen. (Be sure to ignore the similar question, repayments of $3,000 or less.)
6. Enter the amount of the repayment in the box Claim of right repayment over $3,000 and click Continue.

Taking the credit in TurboTax (less common)

There are two components to taking the credit in TurboTax. The first part requires determining the amount of the tax that was overpaid in the year the income was actually received. This requires using the TurboTax Desktop product (or another method) to determine what the tax liability would have been without the income. 

1. The credit can only be applied using the TurboTax Desktop product installed on a computer, in the Forms mode.
2. Switch to Forms mode by clicking on Forms icon in the program.
3. In the list of forms on the left click on 1040/1040RSR Wks above the Form 1040 itself.
4. Scroll down to Other Credits and Payments Smart Worksheet (near the bottom) and enter the amount that you have computed on Line E Claim of Right, IRC 1341 credit for repayments of prior year income.
5. Click on the Step-by-Step or Easy Step icon in the upper right corner to return to the interview mode and finish working on your tax return

                     

@seanbernhardt40

[Edited: 02/11/2024 | 9:13 AM PST]

[seanbernhardt40]

Your reply was actually quite helpful you seem very knowledgeable, however once I read all the  legalese jargon and took a moment to process it i can say without any doubt that I input my information properly, is it at all possible that they just have a really glitchy website it freezes up on me all the time,

but at the end of the day what you're really telling me is that I can't do jack about it unless I pay money and upgrade to the desktop site is that right?

[Opus 17 · Accepted solution]

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@seanbernhardt40 wrote:

Your reply was actually quite helpful you seem very knowledgeable, however once I read all the  legalese jargon and took a moment to process it i can say without any doubt that I input my information properly, is it at all possible that they just have a really glitchy website it freezes up on me all the time,

but at the end of the day what you're really telling me is that I can't do jack about it unless I pay money and upgrade to the desktop site is that right?

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You can use the special itemized deduction on any version of Turbotax.  But not all people will benefit from the itemized deduction depending on their other deductions.

To use the credit method, you must make a manual entry using the desktop program.

Unless you qualify for free filing, the cost of the desktop program is comparable to the online program, especially if you buy the download from a discount retailer rather than direct from Intuit (like Best Buy, Staples, or Amazon).  You want the Deluxe (Federal plus one free state) program.  You just pay up front instead of at the end. 

[seanbernhardt40]

Hey thanks a lot I actually really appreciate that you're very helpful, not like most of the rude witches on here, a lot of the people that post on your treat you like a [removed] because you don't know the [removed] tax code but you've been super cool and hopeful I appreciate that I'll see if that works for me and remember don't have a good day have a great day

[rgm4]

Great answer!  To expand the question, here is another situation.  Employee receives a signing bonus of say 75K.  Leaves within the same year and the employer requires it all to be paid back within the same year.  Employer did not fix the W-2 so the 75K is included on the W-2 but only the net was actually received by the employee (net of taxes fed state local, 401K, etc).  Is this 75K payback with in the same year of receiving still reported as an itemized deduction subject to the 2% limit if itemizing (IRC1341 deduction but its the same year) or as a credit as stated above when its within the same tax year?

[DaveF1006]

The 2% miscellaneous was suspended in 2017 through the Tax Cuts and Jobs Act so the entire $75,000 can be claimed as a Right of Repayment.  It would need to be recorded in two separate entries in TurboTax.

1. Go to the Deductions and Credits Section of your return.
2. Go to Other Deductions and Credits
3. Other Deductible Expenses
4. Go to Less Common Expenses
5. Describe this as Repayment of Income Less than $3000 and record $3000 here.
6. The next screen will ask if you have any of these other expenses, you will say yes since the Right of Repayment over $3000 is listed here.
7. Tell us of your other expenses, here record $72,000 for Claim Right of Repayment over $3000.

[Edited 03/20/22|12:59 pm PST]

@rgm4 

[Opus 17]

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@rgm4 wrote:

Great answer!  To expand the question, here is another situation.  Employee receives a signing bonus of say 75K.  Leaves within the same year and the employer requires it all to be paid back within the same year.  Employer did not fix the W-2 so the 75K is included on the W-2 but only the net was actually received by the employee (net of taxes fed state local, 401K, etc).  Is this 75K payback with in the same year of receiving still reported as an itemized deduction subject to the 2% limit if itemizing (IRC1341 deduction but its the same year) or as a credit as stated above when its within the same tax year?

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Not exactly.

If the repayment amount is more than $3000, you can take it either as a direct tax credit (that you must calculate yourself, and enter manually in Forms mode that is only offered in Turbotax Desktop versions); or you can take it as a special itemized deduction not subject to the 2% rule.  The deduction is easier to claim, but you are allowed to choose whichever method (deduction or credit) gives you the larger reduction in tax. 

You claim the actual amount you paid back as cash, regardless of other adjustments.  If you paid back the full 75K, you will get the state and federal income tax adjustment on your tax return by taking the credit or deduction, that makes you whole as to the income taxes.  For social security taxes, you need to file a claim using form 843. (This is separate from your tax return, not filed with your tax return, and can't be prepared with Turbotax.). For the 401k, you got to keep that (it wasn't removed from the 401k.