Section 1341 Credit

A section 1341 credit is a tax credit taxpayers may claim if wages they earned in an earlier year were paid in a later year. The section 1341 credit comes into play only if a taxpayer paid taxes on the wages they weren't paid until later. Taxpayers claiming a section 1341 credit are thereby able to avoid filing an amended return for the earlier tax year. The minimum amount permitting a section 1341 credit is $3,000. Form 1040 has the entry for a section 1341 credit on line 70. The tax preparer computes a section 1341 credit by subtracting the wages from the earlier tax year as if they hadn't been paid, then by calculating the tax that would have been paid on the lower income amount. The difference between the figure that was paid and the figure that would have been paid is the amount of the section 1341 credit. Taxpayers may then decide whether to claim the section 1341 credit or deduct the repayment as a miscellaneous itemized deduction, depending on which option provides a greater benefit. A section 1341 credit may also apply in cases involving rate refunds or repayments by a public utility, from settlement of litigation, or from changes to income arising from the threat of litigation.