How to compute a credit against my tax liability? Gov't paid me pre-tax amount, I had to pay back post-tax amount.

[nonnerjonner]

The government accidently paid me $3720.47.  What I actually received was that amount with the tax removed, ~$2800.00.  When I had to repay them I had to pay back the original untaxed amount.  I was told that while filing my 2020 tax return that I would see that difference come back to me.  I received a letter in the mail from the government saying that because the amount is over $3000 that I can "use the amount repaid to compute a credit against my tax liability (26 U.S.C. Sec. 1341). "  What I really would like to know is how to do that on Turbotax, any help is greatly appreciated.

Text from letter from government:

"In a prior calendar year you were overpaid by the Department of Defense.  The overpayment was established as a debt to the United States and was reported as taxable income in that year.  This certifies that during calendar year 2020 you paid the United States a total of $3720.47 toward settlement of your debt."

[KrisD15]

In TurboTax please click Deductions & Credits

Scroll down to "Other Deductions and Credits" and click Show more

Scroll down this list to "Other Deductible Expenses" and click Start

Answer "NO" to "Generation-skipping taxes" 

Answer "NO" on the next screen for repayments of $3,000 or less

Answer "YES" to the next screen for Claim of Right repayment over $3,000

"The IRS provides a couple of different options:  claiming a deduction on your current year income, or a credit based on the change that the amount would have made had the amount been correctly reported to you last year (not required to have been repaid).  Click on this link to find an example on how to calculate the best tax treatment for you:  Publication 525 - Taxable and Nontaxable Income ... - IRS Tax Map."

Original Answer