How do I account for an overpayment of income by a former employer?

by Eric S. MacCollum, CPA | Feb 23, 2018
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How do I account for an overpayment mistake by a former employer in 2016 of $10,000 on my 2017 tax return? The amount was repaid in 2017, and there is a letter of certification of it by the former employer.

When you are repaid wages that were taxed in a previous year, typically this is called a Claim of Right repayment. The way you handle it depends on the amount of your repayment. If the amount repaid is $3,000 or less, you can claim a deduction for the amount repaid.

In your situation, since the amount is over $3,000, you have the option of taking a credit for the repayment or taking a deduction for the amount repaid. While the explanation sounds simple, showing it properly on your tax return or getting tax software to do this is not so easy. The fact that you have proper documentation and a letter of certification from the former employer will definitely help should you ever get a notice.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Eric S. MacCollum, CPA, is a principal with Hudak and Company in Lemoyne, Pa.

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