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Posted by Frederick Lorca on March 16, 2007, 1:31 pm
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> It's been awhile since I've had to post here, but I read the
> digest every day. Have a client who received third party
> sick pay in 2004. He subsequently qualified for SSI payments
> (in 2005) and had to repay the sick pay he received and paid
> taxes on in 2004 (this is the short version; if I need to go
> into more detail, I will). Is there any fix for this
> situation?
If he repaid more than $3,000, § 1341 gives him the option
of deducting the repayment on Schedule A as a miscellaneous
itemized deduction not subject to the 2% of AGI floor, OR
claiming a refundable credit on Form 1040, line 70. The
refundable credit usually is more beneficial. The credit is
the difference between his actual 2004 tax liability and
what his 2004 tax liability would have been without having
included the sick pay. If he claims the credit he won't be
able to e-file. I'm not sure if the Schedule A option
precludes him from e-filing or not.
If he repaid less than $3,000, the repayment is deductible
only on Schedule A as a miscellaneous itemized deduction
subject to the 2% of AGI floor, which almost means he's SOL.
The deduction or credit is claimed in the year he repaid the
income. You do not amend the 2004 return.
IRS Publication 525 has a good explanation of Repayments on
starting on page 33.
http://www.irs.gov/pub/irs-pdf/p525.pdf
Frederick Lorca
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