Amending a tax return or new income for refund of student loan interest?

[iEngineer]

What is the name of your state? PA

I received a refund for a student loan payment made in March 2020 because of the pandemic associated forbearance period. This refund included a very small amount of student loan interest ($16). My lender included a statement that if I had interest payments over $600, a revised 1098-E will be issued. I did not pay more than $600, but my lender did provide me with a letter showing the interest I had paid in 2020, which I included as an adjustment on my 2020 Schedule 1.

Now with this payment being refunded, do I need to amend my 2020 tax return to show $16 less of student loan interest? It does result in an additional $11 in tax being owed for 2020 based on the 2020 tax table. Alternatively, do I just treat this as $16 of other taxable income for 2022? Is the amount so negligible that it doesn't even matter? Thanks in advance!

 

[Bali Hai Again]

What is the name of your state? PA

I received a refund for a student loan payment made in March 2020 because of the pandemic associated forbearance period. This refund included a very small amount of student loan interest ($16). My lender included a statement that if I had interest payments over $600, a revised 1098-E will be issued. I did not pay more than $600, but my lender did provide me with a letter showing the interest I had paid in 2020, which I included as an adjustment on my 2020 Schedule 1.

Now with this payment being refunded, do I need to amend my 2020 tax return to show $16 less of student loan interest? It does result in an additional $11 in tax being owed for 2020 based on the 2020 tax table. Alternatively, do I just treat this as $16 of other taxable income for 2022? Is the amount so negligible that it doesn't even matter? Thanks in advance!

I’ll take a shot at one question. The IRS is a collection agency. If you owned that collection agency and 20 million people owed you $11 what would you do? Yes it does matter.

 

[Taxing Matters]

Now with this payment being refunded, do I need to amend my 2020 tax return to show $16 less of student loan interest?

What do you mean that the payment was "refunded"? Did the student loan lender send you the $16 back? Or did the IRS refund it? The details matter.

 

[iEngineer]

I’ll take a shot at one question. The IRS is a collection agency. If you owned that collection agency and 20 million people owed you $11 what would you do? Yes it does matter.

Indeed...that's why I want to take care of it...just not sure if it is an amendment or if it's just treated as taxable income for current year. Someone was telling me that when the IRS receives revised tax forms they'll send a notice with a re-calculated amount of the tax due.

What do you mean that the payment was "refunded"? Did the student loan lender send you the $16 back? Or did the IRS refund it? The details matter.

It's refunded by the lender. All payments made after March 13 or 15, 2020 (when the government placed federal loans in forbearance without any interest) are optional and available for a refund (it's been that way since 2020, but I never bothered since the amount was so low). Now with the government canceling up to $20,000 of federal student loans I read online that they are automatically issuing refunds for borrowers who's balance is less than that threshold and who made payments after March 13 or 15, 2020. The article I read said it would be automatic. My balance was less than $10,000, so I called my lender who confirmed my March 2020 payment was being refunded and put it through over the phone. I received my email confirmation and that's where it said:

If your 1098-E statement was over $600.00, you will be re-issued a new 1098-E statement. Please consult a tax professional for questions on the re-issued 1098-E statement.

Now I'm trying to figure out the channels that need taken. My 1098-E statement was less than $600, so it sounds like it will not even be re-issued. But the accuracy of the tax return is obviously changing since a portion of my 2020 deducted student loan interest is now being refunded in 2022.

 

[Taxing Matters]

In that case, just include the amount on the return for year in which the payment was received. Given the amount here, I'd just put it on the return on the line for "other income." On the 2021 return that would be line 8 of Form 1040 and you'd attach Schedule 1 to it. It's not difficult; should only take a minute or two to do. I've not looked at the 2022 return forms to see where it will appear for this year.

 

[iEngineer]

Thank you! That’s great news and makes it easy to just include the refunded interest as other income for my 2022 return. Seems easier than trying to amend a prior years return anyway.

 

[davew9128]

I’ll take a shot at one question. The IRS is a collection agency. If you owned that collection agency and 20 million people owed you $11 what would you do? Yes it does matter.

In other words, you don't know. The collections answer is IRS wouldn't waste the time. Do you know what the tax on that $16 interest deduction was?

The tax law answer is that the $16 is income in the year it was refunded, subject to the tax benefit rule.

 

[Bali Hai Again]

In other words, you don't know. The collections answer is IRS wouldn't waste the time. Do you know what the tax on that $16 interest deduction was?

The tax law answer is that the $16 is income in the year it was refunded, subject to the tax benefit rule.

Are you advising OP not to pay the $11 he says he owes the IRS?

 

[Zigner]

Are you advising OP not to pay the $11 he says he owes the IRS?

The answer given (from a tax law perspective) was: "...the $16 is income in the year it was refunded, subject to the tax benefit rule."

 

[Bali Hai Again]

The answer given (from a tax law perspective) was: "...the $16 is income in the year it was refunded, subject to the tax benefit rule."

Understood, however, my reply to the OP did not attempt to address that question. My reply was to answer OP’s question whether to pay the $11 he said he owed the IRS or ignore it.

 

[PayrollHRGuy]

Understood, however, my reply to the OP did not attempt to address that question. My reply was to answer OP’s question whether to pay the $11 he said he owed the IRS or ignore it.

Yes he did in the OP.

Alternatively, do I just treat this as $16 of other taxable income for 2022?

 

[LdiJ]

What is the name of your state? PA

I received a refund for a student loan payment made in March 2020 because of the pandemic associated forbearance period. This refund included a very small amount of student loan interest ($16). My lender included a statement that if I had interest payments over $600, a revised 1098-E will be issued. I did not pay more than $600, but my lender did provide me with a letter showing the interest I had paid in 2020, which I included as an adjustment on my 2020 Schedule 1.

Now with this payment being refunded, do I need to amend my 2020 tax return to show $16 less of student loan interest? It does result in an additional $11 in tax being owed for 2020 based on the 2020 tax table. Alternatively, do I just treat this as $16 of other taxable income for 2022? Is the amount so negligible that it doesn't even matter? Thanks in advance!

You would count the interest refund as income in the year that you received it. However, in reality the amount is small enough that the IRS would be unlikely to question it unless you had other, bigger ticket items missing from your 2022 return.