the rules for claim of right repayment under IRC 1341 depend on the year the income was received and the year of repayment. if the same year the amounts should be netted. if repayment is in the current year for income reported in a prior year and is over $3000, the taxpayer has an option
1) take as an itemized deduction in the year of repayment on schedule A or
2) recompute the taxes for the year received by properly eliminating the repayment amount from income. This could be box 1 of w-2 or some other form (if this is a business repayment IRC 1341 doesn't apply. The taxpayer takes a business deduction on the same schedule the income was reported in the prior year). the difference in taxes between what was originally filed and the recomputed taxes is taken as a credit on schedule 3 line 13b
