Do I file an amended tax return if I repay tuition assistance (after filing my return) that my employer provided in 2017?

Question

I am paying back $24,500 in tuition assistance that I received in 2017.

The first $5xxx-something was untaxed but the remainder showed up on my 2017 W2 as income. Now that I'm repaying it, I'm expecting to file an amended 2017 return once I make my final repayment in June.

Is this the correct action to take? I don't understand if that 2017 income actually goes away or if my 2018 income is somehow modified, or something else entirely.

I also tried putting my reduced salary in turbotax and it indicated that I would have significant overwithholding in taxes that I'd need to reclaim from my former employer or via form 843.

If it matters, my former employer paid me directly as a normal paycheck, so my 1098-T indicates that I paid the full tuition amount myself.

Answer 1

It turns out that the answer is that I would NOT file a 1040x.

This situation can be generalized as a repayment of overpayment of salary in a subsequent tax year.

There are two solutions to this problem:

1. In the tax year in which the repayment was made, the taxpayer can take an itemized deduction in the amount of the repayment on line 28 of Schedule A. This is not subject to the 2% AGI rule.
2. First, recalculate the taxes from the previous year as if the overpayment was not made and determine the difference 'C' between the original and corrected taxes. Then, in the tax year in which the repayment was made, the taxpayer can claim a credit for amount 'C' on line 73 of form 1040 under rule IRC 1341.

The taxpayer can choose which of the two solutions to employ.

Note that if the repayment is under $3,000, only option 1 applies and it will be subject to the 2% AGI rule.

Source: [1] https://www.irs.gov/publications/p525#en_US_2013_publink1000229600 [2]https://ttlc.intuit.com/questions/2236424-what-is-the-irc-1341-repayment-credit-in-layman-s-terms