repayment of maternity leave pay

[STEVE82]

A client was paid double for her maternity leave by insurance company mistake then had to pay half of it back.  the w-2 shows the full amount. how/where do I deduct the repayment of the maternity leave on 1040?

[TaxGuyBill]

What year was the original payment?

What year did your client repay the half?

[BobKamman]

She didn't have twins, did she?

Yes, it makes a difference whether it all happened in one year or, more likely from your question, the overpayment was made in one year and the repayment in the next.  

[dascpa]

Going through a similar issue on a repaid bonus.

Correct answer is if in same year employer is supposed to issue a W-2c.  My client's employer will not.

If not or if in different years the IRS says it's an Other Itemized Deduction which no longer exists.  But in Pub 525 page 4, "You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Attach to your tax return a copy of the receipt or statement given to you by the agency you repaid to explain the difference between the wages on your return and the wages on your Forms W-2.

But on page 37 - 

If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it. In most cases, you can claim a deduction or credit only if the repayment qualifies as an expense or loss incurred in your trade or business or in a for-profit transaction. 

Type of deduction. The type of deduction you're allowed in the year of repayment depends on the type of income you included in the earlier year. In most cases, you deduct the repayment on the same form or schedule on which you previously reported it as income. For example, if you reported it as self-employment
income, deduct it as a business expense on Schedule C (Form 1040) or Schedule F (Form 1040). If you reported it as a capital gain, deduct it as a capital loss as explained in the Instructions for Schedule D (Form 1040). If you reported it as wages, unemployment compensation, or other nonbusiness income, you may be able to deduct it as an other itemized deduction if the amount repaid is over $3,000.
For tax years beginning after 2017, you can no longer claim any miscellaneous
itemized deductions; so, if the amount repaid was $3,000 or less, you aren’t able to
deduct it from your income in the year you repaid it.

Repaid social security benefits. If you repaid social security or equivalent railroad retirement benefits, see Pub. 915. Repayment over $3,000. If the amount you
repaid was more than $3,000, you can deduct the repayment as an other itemized deduction on Schedule A (Form 1040), line 16, if you included the income under a claim of right. This means that at the time you included the income, it appeared that you had an unrestricted right to it. However, you can choose to take a credit for
the year of repayment. Figure your tax under both methods and compare the results. Use the method (deduction or credit) that results in less tax. When determining whether the amount you repaid was less than $3,000, consider the total amount being repaid on the return. Each instance of repayment isn't considered separately.
CAUTION
!
CAUTION
!
Method 1. Figure your tax for the year of repayment claiming a deduction for the repaid amount.
Method 2. Figure your tax for the year of repayment claiming a credit for the repaid
amount. Follow these steps.
1. Figure your tax for the year of repayment without deducting the repaid amount.
2. Refigure your tax from the earlier year without including in income the amount
you repaid in the year of repayment.
3. Subtract the tax in (2) from the tax shown on your return for the earlier year. This is
the credit.
4. Subtract the answer in (3) from the tax for the year of repayment figured without the deduction (step 1).  

If method 1 results in less tax, deduct the amount repaid. If method 2 results in less tax, claim the credit figured in (3) above on Form 1040 or 1040-SR. (If the year of repayment is 2021, and you're taking the credit, enter the credit on Schedule 3 (Form 1040), line 13d, and see the instructions for it.)

Example 40. For 2021, you filed a return and reported your income on the cash method. In 2022, you repaid $5,000 included in your 2021 income under a claim of right. Your filing status in 2022 and 2021 is single.

[STEVE82]

payment was on w-2 for 2022. repayment was made in Feb of 2023.  repaid $5900

[BobKamman]

She should have repaid $5700 and told them the rest is  for the extra work you have to do next year on the 2023 return.  

[TaxGuyBill]

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@STEVE82 wrote:

 repayment was made in Feb of 2023.

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Then that goes on the 2023 tax return.

You can do some summer reading to see how to treat it next year.

https://www.irs.gov/publications/p525#en_US_2022_publink1000229600