Unfortunately, the income is taxable. You need to claim a credit for the money paid back. The IRC 1341 shows as a credit on Sch 3, line 13b and carries to the 1040 line 31.
We follow the rules from IRS Repayment over $3,000. To do this in TurboTax, follow the steps in What is a claim of right repayment?
You will have to determine the change in tax over all years involved. The IRS pub has examples.
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