J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

2.8 Did You Return Wages Received in a Prior Year?

Did you return income in 2012 such as salary or commissions that you reported in a prior taxable year because it appeared you had an unrestricted right to them in the earlier year? If so, you may deduct the repayment as a miscellaneous itemized deduction. If the repayment of wages exceeds $3,000, the deduction is claimed on Line 28 of Schedule A and is not subject to the 2% adjusted gross income (AGI) floor (19.1). However, if the repayment is $3,000 or less, the deduction must be claimed on Line 23 (“Other Expenses”) of Schedule A, where it is subject to the 2% floor.

Option of tax credit or deduction for repayments over $3,000.

If your repayment of wages exceeded $3,000, you may claim the repayment as an itemized deduction, or you may claim a tax credit, based upon a recomputation of the prior year’s tax; see the Filing Instruction on this page.

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Filing Instruction

Repayments Exceeding $3,000

If a repayment of wages in 2012 exceeds $3,000, a special law (Code Section 1341) gives this alternative: Instead of claiming an itemized deduction from 2012 income, you may recompute your tax for the prior year as if the wages had not been reported. The difference between the actual tax paid in the prior year and the recomputed tax may be claimed as a credit on your 2012 return. The credit is claimed on Line 71 of ...