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HMRC continued to pay child benefit during 2008 into a UK bank account after we left the UK. We wrote to them and sent (my wife's) P85 again.

Finally in September 2008 they stopped paying us. At some point I'm expecting them to ask for the money back which is not a problem as it is still in the UK and we haven't spent a penny of it since being in the US. I'm not really interested in keeping it and am glad they finally stopped paying it.

My question is what do I do for my 2008 US tax return? How do I declare that my wife received "income". Is the right thing to do is declare this as a W-2?

Also when we finally pay back the money, will I get the chance to claim this payback back in my 2009 return?

I used TT to put this payment in as a W-2. It reduce my tax refund by 4% which seems unfair as I won't be keeping the money. I don't want not to report it in fear of this coming back to me from being audited.

Any help appreciated!

49,103 Posts
Hi and welcome to the forum.

If you are fairly certain that you will have to give back the money, I would just not report it. In a pinch (and your chances of being audited are pretty slim unless you've got financial stuff that "looks dodgy" elsewhere on the return), you can cite the instructions for line 21, form 1040 that say that "child support" is a nontaxable amount. They don't define "child support" but child benefit sure seems a logical fit.

If you insist on reporting it, I would advise reporting it on line 21 as "other income" so that the unusual nature of the money is highlighted. When you have to pay it back, you can't deduct it, but you could theoretically go back and file an amended return, which would show that you received the child benefit "in error" and thus should not have been taxed on it. (The fact that you haven't touched it is further evidence of "good faith.")

The IRS isn't as fearsome and unreasoning as some folks would have you believe. Generally, if they come back to you for an honest mistake or misunderstanding, you can get them to waive any penalties as long as you pay the additional tax and interest. But I think on this one, you're pretty safe in just leaving it off your return.

PS Just in case you're wondering, I am an accountant and have a CPA (though that was a long time ago in a galaxy far, far away <g>). I try to keep up on changes in the tax laws, but I admit to focusing on the things that affect my own returns.
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