Question

If I received an overpayment of unemployment benefits and have to make an unemployment repayment, do I have to claim my unemployment?

Answer

If you repaid the overpayment of unemployment benefits in the same year you received them — Subtract the amount of unemployment repayment from the total taxable amount you received. Report the difference as unemployment compensation.

If you didn’t repay overpayment of unemployment benefits in the same year — Include the benefits in income for the year they were paid.

If the amount of unemployment repayment is $3,000 or less, deduct it on Schedule A in the year you repaid. The deduction is subject to the limit of 0.02 of your adjusted gross income (AGI).

If the amount of unemployment repayment is more than $3,000, calculate the tax under both of the following methods. Compare the results and use the method (deduction or credit) that results in less tax:

  • Repayment claimed as a deduction — Deduct the repayment on Schedule A in the year you repaid it. The deduction isn’t limited to 0.02 of your AGI.
  • Repayment as a credit:
    1. Figure the tax for the year of repayment without deducting the repaid amount.
    2. Refigure the tax from the earlier year without including in income the amount repaid in the current tax year.
    3. Subtract the tax in step 2 from the tax shown on the return for the earlier year tax. This is the credit amount.
    4. Subtract the answer in step 3 from the tax for the current tax year figured without the deduction (step 1).

 

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