If i have a 1099-misc showing an amount that is "interest paid" on backpay paid to me in 2016 where in turbo tax deluxe should this be entered?

Your 1099 SHOULD be entered as "Interest Income," but since you do not have a 1099-INT, putting it there will confuse the IRS, which has an excellent income matching program.  You should start by requesting a corrected document.  If you cannot get one, follow the instructions below:

To enter your 1099-MISC on your return:

• Choose the Federal return and the Wages & Income tab.
• Scroll down to Less Common Income and Show more.
• Choose Miscellaneous Income, 1099-A, 1099-C.
• Choose Other Reportable Income and say Yes.
• Even though the screen says "Do not enter income reported on Form 1099-MISC", this is where you will enter the description "1099-MISC for Interest Paid on Back Pay," the amount you received, and who received it, if necessary.

I have a similar situation where I received a 1099-MISC, but it was really interest earned on crypto holdings (they even label the accounts as interest bearing accounts, but for some reason, they've been guided by their tax/law team to issue 1099-MISC). The solution makes perfect sense, but I'm curious if this will create an audit flag, since there will not be a corresponding 1099-MISC submission to match with what the IRS received? In my case, it's relatively negligible amount of self-employment tax owed, and trying to weigh the risk/benefit of just paying the tax to lower the risk of being audited. Although, I certainly hate to pay any taxes that I shouldn't be obligated to pay. Thanks in advance.

The income will match what the IRS has and the description will add clarity. The steps KittyM outlines above are sound.