Your employer is correct. 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.
On TurboTax, you will go to the Federal Taxes, Deductions and Credits section. You will need to select on Other Deductions and Credits. Then, follow the instructions in the screenshots below. (Please note: the screenshots were taken using the online version of TurboTax. If you are in Desktop, the screen appearance may be a little different but the instructions should be very similar):
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
