I had to repay my employer $2,500 in 2017 for an overpayment in 2016, on which I paid income tax for in 2016. Why does Turbotax say I can't deduct it?

[DianeW · Accepted solution]

Repayments can be included in the current year tax return as a deduction if they were reported as income in a prior year and then repaid in the current year.  Do not change or amend the prior year return.

Since your repayment was below $3,000, the correct way to report it in 2017, is a deduction on itemized deductions for your federal return.

If the repayment is $3,000 or less.  If the amount you repaid was $3,000 or less, deduct it from your income in the year you repaid it. If you must deduct it as a miscellaneous itemized deduction, enter it on Schedule A (Form 1040), line 23. 

• • Select Federal  - Deductions & credits - Other deductions and credits - Other deductible expense
  • Continue until you can answer "yes" to Repayments of $3,000 or less (previously included in income)
  • This will be recorded as a miscellaneous expense, line 23 Schedule A and allowed subject to the amount that is in excess of 2% of your AGI, then added to your other itemized deductions.