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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
earlier year is considered to have reduced your If you had a net operating loss (NOL) in a prior explain the tax treatment of certain payments
tax in the earlier year. If the recovery is for an year, you'll have to adjust your taxable income made to survivors. For additional information,
itemized deduction claimed in a year in which for any NOL carryover. See Pub. 536 for more see Pub. 559.
the deductions were limited, see Itemized de- information.
ductions limited, earlier. Lump-sum payments. Lump-sum payments
If your tax, after application of the credits, Unused tax credits. If you recover an item de- you receive from a decedent's employer as the
doesn't change, you didn't have a tax benefit ducted in an earlier year in which you had un- surviving spouse or beneficiary may be accrued
from the deduction. Don’t include the recovery used tax credits, you must refigure the earlier salary payments; distributions from employee
in your income. year's tax to determine if you must include the profit-sharing, pension, annuity, or stock bonus
recovery in your income. To do this, add the plans; or other items that should be treated sep-
Example 35. In 2021, you filed as head of amount of the recovery to your earlier year's arately for tax purposes. The tax treatment of
household and itemized your deductions on taxable income and refigure the tax and the these lump-sum payments depends on the type
Schedule A (Form 1040). Your taxable income credits on the refigured amount. If the refigured of payment.
was $5,260 and your tax was $528. You tax, after application of the credits, is more than
Salary or wages. Salary or wages re-
claimed a child care credit of $1,200. The credit the actual tax in the earlier year, include the re- ceived after the death of the employee are usu-
reduced your tax to zero, and you had an un- covery in your income up to the amount of the
used tax credit of $672 ($1,200 − $528). In deduction that reduced the tax in the earlier ally ordinary income to you.
2022, you recovered $1,000 of your itemized year. For this purpose, any increase to a credit Qualified employee retirement plans.
deductions. You reduce your 2021 itemized de- carried over to the current year that resulted Lump-sum distributions from qualified em-
ductions by $1,000 and refigure that year's tax from deducting the recovered amount in the ployee retirement plans are subject to special
on taxable income of $6,260. However, the earlier year is considered to have reduced your tax treatment. For information on these distribu-
child care credit exceeds the refigured tax of tax in the earlier year. tions, see Pub. 575 (or Pub. 721 if you're the
$628. Your tax liability for 2021 isn't changed by If your tax, after application of the credits, survivor of a federal employee or retiree).
reducing your deductions by the recovery. You doesn't change, you didn't have a tax benefit
didn't have a tax benefit from the recovered de- from the deduction. Don’t include the recovery Public safety officer killed in the line of
duction and don’t include any of the recovery in in your income. duty. If you're a survivor of a public safety offi-
your income for 2022. cer who was killed in the line of duty, you can
Capital gains. If you determined your tax in exclude from income any amount received as a
Subject to AMT. If you were subject to the the earlier year by using the Schedule D Tax survivor annuity on account of the death of a
AMT in the year of the deduction, you'll have to Worksheet, or the Qualified Dividends and Cap- public safety officer killed in the line of duty.
refigure your tax for the earlier year to deter- ital Gain Tax Worksheet, and you receive a re- For this purpose, the term “public safety offi-
mine if the recovery must be included in your in- fund in 2022 of a deduction claimed in that year, cer” includes law enforcement officers, firefight-
come. This will require a refiguring of your regu- you'll have to refigure your tax for the earlier ers, chaplains, and rescue squad and ambu-
lar tax, as shown in Example 35, and a year to determine if the recovery must be inclu- lance crew members. For more information, see
refiguring of your AMT. If inclusion of the recov- ded in your income. If inclusion of the recovery Pub. 559.
ery doesn't change your total tax, you don't in- doesn't change your total tax, you don't include
clude the recovery in your income. However, if the recovery in income. However, if your total
your total tax increases by any amount, you re- tax increases by any amount, you must include Unemployment Benefits
ceived a tax benefit from the deduction and you the recovery in your income up to the amount of
must include the recovery in your income up to the deduction that reduced your tax in the ear- The tax treatment of unemployment benefits
the amount of the deduction that reduced your lier year. you receive depends on the type of program
tax in the earlier year. paying the benefits.
Amounts Recovered for Credits
Nonitemized Deduction Unemployment compensation. Generally,
you must include in income all unemployment
Recoveries If you received a recovery in 2022 for an item compensation you receive. You should receive
for which you claimed a tax credit in an earlier a Form 1099-G showing in box 1 the total un-
This section discusses recovery of deductions year, you must increase your 2021 tax by the
other than itemized deductions. amount of the recovery, up to the amount by employment compensation paid to you. In most
cases, you enter unemployment compensation
which the credit reduced your tax in the earlier
Total recovery included in income. If you year. You had a recovery if there was a down- on Schedule 1 (Form 1040), line 7.
recover an amount that you deducted in an ear- ward price adjustment or similar adjustment on If you received unemployment com-
lier year when you were figuring your AGI, you the item for which you claimed a credit. ! pensation but didn't receive Form
must generally include the full amount of the re- CAUTION 1099-G, Certain Government Pay-
covery in your income in the year received. This rule doesn't apply to the investment ments, through the mail, you may need to ac-
credit or the foreign tax credit. Recoveries of cess your information through your state’s web-
Total recovery not included in income. If these credits are covered by other provisions of site to get your electronic Form 1099-G.
any part of the deduction you took for the recov- the law. See Pub. 514 or Form 4255 for details.
ered amount didn't reduce your tax, you may be Types of unemployment compensation.
able to exclude at least part of the recovery Sharing/Gig Economy Unemployment compensation generally in-
from your income. You must include the recov- cludes any amount received under an unem-
ery in your income only up to the amount of the ployment compensation law of the United
deduction that reduced your tax in the year of Generally, if you work in the gig economy or did States or of a state. It includes the following
the deduction. (See Tax benefit rule, earlier.) gig work, you must include all income received benefits.
from all jobs whether you received a Form
Negative taxable income. If your taxable in- 1099-K, Payment Card and Third-Party Net- • Benefits paid by a state or the District of
Columbia from the Federal Unemployment
come for the prior year was a negative amount, work Transactions, or not. See the Instructions Trust Fund.
the recovery you must include in income is re- for Schedule C (Form 1040) and the Instruc- • State unemployment insurance benefits.
duced by that amount. You have a negative tax- tions for Schedule SE (Form 1040). • Railroad unemployment compensation
able income for 2021 if your: benefits.
• Form 1040, the sum of lines 12c and 13, Survivor Benefits • Disability payments from a government
was more than line 11; or program paid as a substitute for unemploy-
• Form 1040-NR, line 14, was more than In most cases, payments made by or for an em- ment compensation. (Amounts received as
line 11. ployer because of an employee's death must be workers' compensation for injuries or ill-
included in income. The following discussions ness aren't unemployment compensation.
Publication 525 (2022) Page 29