Page 74 - 2020 Publication 17

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
the year of repayment. Figure your tax under 14:38 - 19-Jan-2021
both methods and compare the results. Use the Royalties Unemployment
method (deduction or credit) that results in less Benefits
tax. Royalties from copyrights, patents, and oil, gas,
When determining whether the amount and mineral properties are taxable as ordinary The tax treatment of unemployment benefits
income.
! you repaid was more or less than you receive depends on the type of program
CAUTION $3,000, consider the total amount be- In most cases, you report royalties in Part I paying the benefits.
ing repaid on the return. Each instance of re- of Schedule E (Form 1040). However, if you
payment isn’t considered separately. hold an operating oil, gas, or mineral interest or Unemployment compensation. You must in-
clude in income all unemployment compensa-
Method 1. Figure your tax for 2020 claiming are in business as a self-employed writer, in- tion you receive. You should receive a Form
a deduction for the repaid amount. If you deduct ventor, artist, etc., report your income and ex- 1099-G showing in box 1 the total unemploy-
penses on Schedule C (Form 1040).
it as an other itemized deduction, enter it on ment compensation paid to you. In most cases,
Schedule A (Form 1040), line 16. Copyrights and patents. Royalties from you enter unemployment compensation on
Schedule 1 (Form 1040), line 7.
Method 2. Figure your tax for 2020 claiming copyrights on literary, musical, or artistic works,
a credit for the repaid amount. Follow these and similar property, or from patents on inven- If you received unemployment com-
tions, are amounts paid to you for the right to
steps. use your work over a specified period of time. ! pensation but did not receive Form
1099-G, Certain Government Pay-
CAUTION
1. Figure your tax for 2020 without deducting Royalties are generally based on the number of ments, through the mail, you may need to ac-
the repaid amount. units sold, such as the number of books, tickets cess your information through your state’s web-
2. Refigure your tax from the earlier year to a performance, or machines sold. site to get your electronic Form 1099-G.
without including in income the amount Oil, gas, and minerals. Royalty income from
you repaid in 2020. oil, gas, and mineral properties is the amount Types of unemployment compensation.
3. Subtract the tax in (2) from the tax shown you receive when natural resources are extrac- Unemployment compensation generally in-
ted from your property. The royalties are based
on your return for the earlier year. This is on units, such as barrels, tons, etc., and are cludes any amount received under an unem-
the credit. paid to you by a person or company that leases ployment compensation law of the United
States or of a state. It includes the following
4. Subtract the answer in (3) from the tax for the property from you. benefits.
2020 figured without the deduction (step
1). Depletion. If you’re the owner of an eco- • Benefits paid by a state or the District of
nomic interest in mineral deposits or oil and gas Columbia from the Federal Unemployment
If method 1 results in less tax, deduct the wells, you can recover your investment through Trust Fund.
amount repaid. If method 2 results in less tax, the depletion allowance. For information on this • State unemployment insurance benefits.
claim the credit figured in (3) above on Sched- subject, see chapter 9 of Pub. 535.
ule 3 (Form 1040), line 12d, by adding the • Railroad unemployment compensation
amount of the credit to any other credits on this Coal and iron ore. Under certain circum- benefits.
line, and see the instructions there. stances, you can treat amounts you receive • Disability payments from a government
An example of this computation can be from the disposal of coal and iron ore as pay- program paid as a substitute for unemploy-
found in Pub. 525. ments from the sale of a capital asset, rather ment compensation. (Amounts received as
Repaid wages subject to social security than as royalty income. For information about workers' compensation for injuries or ill-
and Medicare taxes. If you had to repay an gain or loss from the sale of coal and iron ore, ness aren’t unemployment compensation.
amount that you included in your wages or com- see chapter 2 of Pub. 544. See chapter 5 for more information.)
pensation in an earlier year on which social se- • Trade readjustment allowances under the
curity, Medicare, or tier 1 RRTA taxes were Sale of property interest. If you sell your Trade Act of 1974.
paid, ask your employer to refund the excess complete interest in oil, gas, or mineral rights,
amount to you. If the employer refuses to refund the amount you receive is considered payment • Unemployment assistance under the Dis-
aster Relief and Emergency Assistance
the taxes, ask for a statement indicating the for the sale of property used in a trade or busi-
amount of the overcollection to support your ness under section 1231, not royalty income. Act.
claim. File a claim for refund using Form 843, Under certain circumstances, the sale is subject • Unemployment assistance under the Air-
Claim for Refund and Request for Abatement. to capital gain or loss treatment as explained in line Deregulation Act of 1978 Program.
the Instructions for Schedule D (Form 1040).
Repaid wages subject to Additional Medi- For more information on selling section 1231
care Tax. Employers can’t make an adjust- property, see chapter 3 of Pub. 544.
ment or file a claim for refund for Additional If you retain a royalty, an overriding royalty, Governmental program. If you contribute
Medicare Tax withholding when there is a re- or a net profit interest in a mineral property for to a governmental unemployment compensa-
payment of wages received by an employee in the life of the property, you have made a lease tion program and your contributions aren’t de-
a prior year because the employee determines or a sublease, and any cash you receive for the ductible, amounts you receive under the pro-
liability for Additional Medicare Tax on the em- assignment of other interests in the property is gram aren’t included as unemployment
ployee's income tax return for the prior year. If ordinary income subject to a depletion allow- compensation until you recover your contribu-
you had to repay an amount that you included in ance. tions. If you deducted all of your contributions to
your wages or compensation in an earlier year, the program, the entire amount you receive un-
and on which Additional Medicare Tax was Part of future production sold. If you own der the program is included in your income.
paid, you may be able to recover the Additional mineral property but sell part of the future pro-
Medicare Tax paid on the amount. To recover duction, in most cases you treat the money you Repayment of unemployment compensa-
Additional Medicare Tax on the repaid wages or receive from the buyer at the time of the sale as tion. If you repaid in 2020 unemployment com-
compensation, you must file Form 1040-X, a loan from the buyer. Don’t include it in your in- pensation you received in 2020, subtract the
Amended U.S. Individual Income Tax Return, come or take depletion based on it. amount you repaid from the total amount you
for the prior year in which the wages or com- When production begins, you include all the received and enter the difference on Schedule
pensation was originally received. See the In- proceeds in your income, deduct all the produc- 1 (Form 1040), line 7. On the dotted line next to
structions for Form 1040-X. tion expenses, and deduct depletion from that your entry, enter “Repaid” and the amount you
amount to arrive at your taxable income from repaid. If you repaid unemployment compensa-
tion in 2020 that you included in income in an
the property. earlier year, you can deduct the amount repaid

Page 70 Chapter 8 Other Income