Repay Income Reported in the Previous year

For example, in 2014 you are required to pay back $2,000 of unemployment compensation that was reported as income on your 2013 tax return. What do you do on your 2014 tax return? You have to claim a miscellaneous itemized deduction subject to the 2% of adjusted gross limitation (AGI) for $2,000. This is the rule for repayments of $3,000 or less. If the amount you paid back was greater than $3,000, you have much better options of either claiming a miscellaneous itemized deduction not subject to the 2% AGI limitation or claiming a tax credit on the 2014 return equal to difference between the recomputed 2013 tax as if the income had not been reported and the original tax.