The situation you describe is formally known in the tax community as a "Claim of Right." What this means in plain English is that you are being asked to now repay some item of income that was previously paid out to you in an earlier tax year, which was also reported and taxed in an earlier year.
This situation is actually common enough that there is a name for it (Claim of Right), and there is also a tax procedure used to help remedy the situation.
Please keep in mind, though, that you can only make a Claim of Right if you've actually paid back the money in question. So, in your particular case, you would have had to pay $1,400 to your employer, and have done so during the 2016 calendar year. If, instead, you waited until 2017 to pay back the money, then this would become a Claim of Right on your 2017 tax return.
That said, there are actually two different IRS approved methods for making a Claim of Right. However, one of those processes only applies to amounts over $3,000. Thus, you really have only one pathway from which to choose in this instance. That "choice" will be to take a tax deduction for the $1,400, on Form 1040 Schedule A (itemized deductions).
The mechanical procedure for doing so in TurboTax (Deluxe, Premier, etc.) is described on the following AnswerXchange thread:
https://ttlc.intuit.com/questions/2993187
(Note that the instructions there demonstrate how to make a Claim of Right for amounts both under and over $3,000; you will want to follow just the instructions for the under $3,000 option.)
Additionally, it is also important to keep in mind here that you (or anyone else claiming this
deduction) may or may not actually see any net tax benefit from including this on your tax return. The reason is that you must have
enough itemized deductions (in total) to exceed the standard deduction
available to all taxpayers. Since more than 2 in 3 taxpayers do not, most
people end up taking the (more valuable) standard deduction, rather than
itemizing deductions. If you input all your data carefully, however, the
TurboTax software will make that determination for you.
If you have further
questions, encounter any difficulties, or just want to speak with a live tax
expert who can walk you through your TurboTax entries (including the ability to
screen-share with your computer), please feel free to contact us. We
would be happy to help you (and as a paying customer, the call is free to
you). Here is a link where you can create a support ticket and reach us:
https://support.turbotax.intuit.com/contact/
Thank you for asking this question.
