How to handle repayment of overpaid wages in different tax years?

You've correctly identified the issue - this falls under what's called "claim of right" doctrine in tax law. Unfortunately, the tax code does create a threshold for how these repayments are handled. For repayments under $3,000, they're treated as miscellaneous itemized deductions, which were suspended under the Tax Cuts and Jobs Act through 2025. This means you can't currently deduct these repayments if they're under that $3,000 threshold. For repayments over $3,000, you could use either a deduction or a tax credit calculation method (whichever benefits you more). Your employer should have handled this differently. Ideally, if you repay wages in the same year you received them, the employer simply reduces your W-2 wages. When repayment happens in a different year, they should issue a corrected W-2 for the year of overpayment or provide documentation of the repayment.

This actually happened to me last year with an overpayment situation! I went absolutely crazy trying to figure it out until I found a service called taxr.ai (https://taxr.ai) that helped me understand my options. They analyzed my paystubs and repayment documentation and explained exactly what I could and couldn't claim. The problem is definitely that $3,000 threshold in Pub 525, but they showed me how to properly document everything and maximize what I could claim. They even helped me draft a letter to my HR department that got them to provide proper documentation of the repayment that I could use with my tax filing.

I have to admit I was wrong about taxr.ai! After my skeptical comment, I decided to try it with my own situation (similar wage repayment issue but with a former employer). I uploaded my documents and within hours got a detailed analysis showing exactly how to report everything. They found that my situation qualified for a different treatment because part of my repayment was actually for business expenses that were reimbursed incorrectly. This changed how I could report it on my taxes! Saved me from making a costly mistake and potentially getting flagged for an audit. Really glad I gave it a shot instead of just trying to figure it out on my own.

If you need to contact the IRS to get clarity on this, I HIGHLY recommend using Claimyr (https://claimyr.com). I spent literally 3 weeks trying to reach someone at the IRS about a similar wage repayment issue, constantly getting disconnected or waiting for hours. I was about to give up when a coworker told me about this service. They got me a callback from the IRS in less than 24 hours! You can actually see how it works in their demo video here: https://youtu.be/_kiP6q8DX5c The IRS agent I finally spoke with confirmed the $3,000 threshold issue but also told me about documentation I could request from my employer that would help prove my case if I got audited. Worth every penny for the time saved and getting an actual resolution.

Ok I need to publicly admit I was completely wrong about Claimyr. After dismissing it as BS, I was still desperate to talk to someone at the IRS about my wage repayment issue, so I tried it anyway. The service actually worked exactly as advertised. I got a call from an IRS representative the next morning! The agent I spoke with explained that while I couldn't deduct my repayment (also under $3k), I should keep documentation from my employer confirming the repayment amount and date for my records. The agent also suggested I talk to my employer about issuing a corrected W-2 for the original tax year. The call saved me from making mistakes on my return AND gave me leverage to go back to my HR department with specific requests. Never been so happy to be wrong about something!

Another option worth exploring is asking your employer to adjust your W-2 for the year the wages were originally paid. While they're not required to do this for different-year repayments, some employers will issue a corrected W-2 as a courtesy, especially if you explain the tax implications. I successfully got my company to do this by escalating to the head of payroll and referencing Revenue Ruling 79-311, which covers this specific situation. It took several conversations and a very polite but persistent approach.

Has anyone tried claiming this on their state taxes? I know the federal deduction for amounts under $3k isn't available right now, but some states haven't adopted all the TCJA provisions and might still allow miscellaneous itemized deductions.

This is such a frustrating situation that unfortunately highlights a real gap in tax fairness. I went through something similar a few years ago and learned that the timing of when you discover and repay overpaid wages can make a huge difference in your tax outcomes. One thing I'd suggest is documenting everything meticulously - dates of original payments, dates of repayments, and any communications with your employer about the overpayment. Even though you can't deduct the repayment under $3k federally right now, you want to be prepared if the miscellaneous itemized deduction suspension gets lifted after 2025. Also, don't give up on getting your employer to issue corrected documentation. While they may not adjust the prior year W-2, they should at least provide you with a clear statement showing the repayment amounts and dates. This becomes crucial if you ever get audited and need to explain the situation to the IRS. The whole situation really shows how the tax code can create unfair outcomes for regular taxpayers dealing with employer payroll mistakes. You're essentially being penalized for your employer's error, which seems completely backwards from a fairness perspective.

I'm dealing with almost the exact same situation right now! My employer overpaid me about $1,800 in 2023, and I've been making repayments throughout 2024. Reading through this thread has been incredibly helpful - especially learning about the $3,000 threshold and how the TCJA suspended those miscellaneous deductions. What's really frustrating is that my payroll department initially told me the same thing yours did - that they'd adjust my taxable wages as I repaid. When I followed up after seeing no adjustments, they basically shrugged and said "that's a tax issue, not a payroll issue." The lack of accountability from employers when their mistakes create tax complications for employees is maddening. I'm definitely going to try the approach others mentioned about requesting proper documentation and asking about a corrected W-2. Even if they won't issue one, having that paper trail seems crucial. Thanks to everyone who shared their experiences - it's reassuring to know this isn't just happening to me and that there are at least some potential remedies to explore.

This is exactly the kind of situation that makes me frustrated with our tax system - you're essentially being double-taxed because of your employer's mistake and the arbitrary $3,000 threshold. I've been following similar cases and it really does seem unfair that taxpayers bear the burden when employers mess up payroll across tax years. One thing I'd add to the great advice already given: consider filing a complaint with your state's Department of Labor or equivalent agency about your employer's handling of this situation. While they told you they'd adjust your taxable income as you repaid and then failed to do so, that could potentially be considered misleading information that caused you financial harm. Also, when you're documenting everything as others have suggested, make sure to include any written or email communications where your employer promised to handle the tax adjustments. Even if it doesn't help with the immediate tax issue, having that record could be useful if you decide to escalate the matter or if your state has any consumer protection remedies for employer payroll errors. The whole situation highlights why Congress really needs to revisit that $3,000 threshold - it's way too low given inflation and leaves too many people in exactly your position with no relief.

I'm really sorry you're dealing with this frustrating situation. Unfortunately, what you've discovered is correct - the tax code creates this unfair "double taxation" scenario for wage repayments under $3,000 that cross tax years. Here's what I'd recommend as your next steps: 1. **Document everything meticulously** - Keep records of all original overpayments, repayment dates/amounts, and any communications with your employer about promised tax adjustments. 2. **Request written documentation from your employer** - Even if they won't issue a corrected W-2, get them to provide a formal statement detailing the overpayment amount, repayment schedule, and confirmation that you've fully repaid the wages. Frame this as a documentation request rather than asking them to fix the tax issue. 3. **Don't give up on the corrected W-2 completely** - While not required, some employers will issue one as a courtesy. Reference Revenue Ruling 79-311 and escalate to someone higher in payroll/HR if needed. 4. **Check your state taxes** - Some states didn't conform to all TCJA provisions and may still allow miscellaneous itemized deductions for wage repayments. 5. **Keep records for the future** - The miscellaneous itemized deduction suspension expires after 2025, so your documentation could become valuable then. The situation absolutely stinks and highlights a real gap in tax fairness, but these steps might help minimize the impact and protect you if questions arise later.

This situation is unfortunately all too common and really exposes a fundamental unfairness in how the tax code handles employer payroll errors. As others have mentioned, you're caught in the "claim of right" doctrine trap where the timing of discovery and repayment creates a double taxation scenario for amounts under $3,000. I'd strongly recommend taking a multi-pronged approach here: **Immediate actions:** - Document every communication where your employer promised to adjust taxable wages during repayment - Request a formal letter from HR/payroll acknowledging the overpayment amount, repayment schedule, and dates - Push for a corrected W-2 by escalating beyond your immediate HR contact - sometimes higher-level executives are more willing to authorize this as a customer service gesture **Longer-term considerations:** - File your taxes correctly for now (unfortunately paying tax on the full amount), but keep meticulous records - Consider whether your state tax laws might provide relief that federal law doesn't - Document everything for potential future benefit when the miscellaneous itemized deduction suspension expires after 2025 **Potential escalation:** - If your employer explicitly promised tax adjustments and failed to deliver, consider filing a complaint with your state's labor department for misleading information that caused financial harm The $3,000 threshold really needs to be updated for inflation - $2,400 is a significant amount for most working people to lose to double taxation due to an employer's mistake. Your frustration is completely justified, and I hope some of these approaches help you recover at least part of what you're losing to this unfair situation.

This thread has been incredibly helpful! I'm dealing with a similar situation where my employer overpaid me about $2,100 in 2023, and I've been repaying it throughout 2024. Like everyone else here, I was told initially that they'd adjust my taxable wages during repayment, but that never happened. What's been most valuable from reading all these responses is realizing this isn't just my problem - it's a systemic issue with how the tax code handles employer errors across tax years. The $3,000 threshold really does seem arbitrary and unfair when you consider that $2,000+ is still a significant amount for most people to effectively lose to double taxation. I'm definitely going to try several of the strategies mentioned here: requesting formal documentation from my employer, pushing harder for a corrected W-2 by escalating beyond my immediate HR contact, and checking if my state tax laws provide any relief that federal law doesn't. The point about documenting everything for when the miscellaneous itemized deduction suspension expires after 2025 is also really smart - even if there's no immediate benefit, it could pay off later. One thing I'll add is that this experience has made me much more aware of checking my paystubs carefully going forward. If I catch an overpayment in the same tax year, it sounds like the resolution would be much simpler. Prevention is definitely better than trying to fix this mess after the fact! Thanks to everyone who shared their experiences and solutions - you've turned a really frustrating situation into at least having a clear action plan.

This is such a perfect example of how the tax code can create incredibly unfair situations for ordinary taxpayers. I'm a tax professional, and I see cases like yours more often than you'd think - it's unfortunately become quite common with the suspension of miscellaneous itemized deductions under the TCJA. A few additional points that might help: **Consider filing Form 8275 (Disclosure Statement)** with your tax return to document the unusual circumstances. While this won't change your tax liability, it creates a clear record for the IRS that you're aware of the situation and handling it correctly. This can provide some protection if your return gets flagged for review. **Look into your employee handbook or union contract** (if applicable) to see if there are any provisions about how payroll errors should be handled. Some organizations have policies requiring them to minimize tax impacts on employees when their mistakes create these situations. **Track your effective tax rate impact** - calculate exactly how much extra tax you're paying due to this double taxation. Having that specific dollar amount can be powerful when escalating with your employer or if you decide to pursue any kind of complaint. The reality is that while the law is clear about the $3,000 threshold, the equitable outcome would be for your employer to issue a corrected W-2 or find another way to make you whole. Don't let them dismiss this as "just a tax issue" - it's a financial consequence of their error that disproportionately harms you.

This thread has been incredibly eye-opening! I had no idea that wage repayment situations like this were so common or that the tax code created such unfair outcomes for amounts under $3,000. Reading through everyone's experiences really highlights how employers can essentially pass the financial burden of their mistakes onto employees with no accountability. What really stands out to me is how many people were given the same misleading assurance from their employers - "don't worry, we'll adjust your taxable income as you repay." It seems like HR departments either don't understand the tax implications of cross-year repayments or they're deliberately making promises they can't keep to avoid dealing with the immediate problem. The strategies everyone has shared are fantastic - particularly the Form 8275 disclosure approach that Ingrid mentioned and the emphasis on thorough documentation. I think the key takeaway is that even though the tax law creates an unfair situation, there are still ways to protect yourself and potentially recover some costs through state taxes, escalation with employers, or future changes to the miscellaneous deduction rules. This really should be required reading for anyone dealing with employer payroll errors. The fact that a $3,000 threshold from decades ago is still determining who gets relief while wages and living costs have increased dramatically just shows how out of touch some of these tax provisions have become. Thanks to everyone who shared their experiences - you've created an incredibly valuable resource for people facing this frustrating situation!