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i retired from education last june and elected to receive a larger monthly payment on the condition that if i were to work or substitute in education i would forfeit the monthly payment for each month i worked i worked as a substitute for three months oct - dec and have been invoiced from the state for the retirement amount i received during this time which i will pay back in the mean time i received a w-2 from the state showing i was paid how do i reflect the payment back to the state on my income tax return
You need to report as income what appears on the W-2 from the state. Because as an individual, you must report income on a cash-basis (meaning you report income when you get it, and report expenses when you pay them), you cannot offset the money you received in 2011 by the amount you must pay back in 2012 as a result of your original pension agreement.
For 2012, it is possible that the amount you pay back will be deducted on the W-2 you receive from the state, lowering the amount of your pension benefit. Be sure to check if this is the case. If it is not -- if the full pension amount is still reported without taking into account what you pay back -- then again, you need to report the full amount on the W-2, but in the "Other Income" section on page 1 of the 1040, you can report a negative number for the amount you repaid, and attach a short explanation of this number.
You would be well advised to consult a qualified tax preparer about handling this income and corresponding expense on your 2012 return.
February 17 2012
