A recovery of an amount that is received in a year after it was used as a deduction is income in the year received. You cannot amend your tax return for the earlier year.
As indicated by @marilynjoy the income should be reported on the form or schedule where the deduction was used. Since this was used to reduce the business income in the year paid, then for this reason, it would be an increase to business income in the year of the recovery. This is called the Tax Benefit Rule.
- Tax benefit rule. You must include a recovery in your income in the year you receive it up to the amount by which the deduction or credit you took for the recovered amount reduced your tax in the earlier year. For this purpose, any increase to an amount carried over to the current year that resulted from the deduction or credit is considered to have reduced your tax in the earlier year.
Likewise for self employment business activities the instruction is as follows.
- Recovery of items previously deducted. If you recover a bad debt or any other item deducted in a previous year, include the recovery in income on Schedule C. However, if all or part of the deduction in earlier years did not reduce your tax, you can exclude the part that did not reduce your tax. If you exclude part of the recovery from income, you must include with your return a computation showing how you figured the exclusion. IRS Publication 334, page 24
The key is whether the deduction in the original year reduced your tax (personal income tax and self employment tax). Check the tax with and without the deduction of the amount recovered to see what amount must be included in income in the year of recovery (2022). If you know the full amount reduced your tax then the full amount is included as Schedule C income.
@DeeStall
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
