How does one correct the payment of tax on unemployment compensation if the amount was repaid in the following tax year? IE Paid tax on the income in TY2012 and repaid the amound received in 2013 thus the tax should be refunded.
According to a semi-official guide that we use in our volunteer program:
"Amounts repaid for the current year will reduce the taxable income for the current year. Any amounts repaid for a prior year must be deducted on Schedule A, Miscellaneous deductions (subject to 2% reduction if $3,000 or less) and cannot offset the amount received for the current year."
Pub 17 (2013), pp 90-91 (start with "Repayment of unemployment compensation" on p. 91) seem to say the same thing, except in 100x the words, but also offers alternatives if the amount is over $3,000.
In article ,
A repayment of more than $3,000 can be handled as a Claim of Right.
Pub 17's description is also contained and expanded in Pub 525
under the section "Repayments" and there under Claim of Right.
The two choices are to claim as a current year miscellaneous Sch A
deduction NOT subject to the 2% reduction, or to compute tax as if
that income was not received last year, and to follow a described
procedure to reduce income tax based on that computation.
This procedure is out of scope for AARP TaxAide volunteere, right?
There is a catch all OOS for anything that is not in a training module
or the training pub. Repayments and Claim of Right transactions are not
included in the Itemized Deduction training module.
I believe the current OOS poster has a statement regarding Schedule A
transactions being OOS if not included in training.