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When payment is included into taxable income - then when later you PAY that amount back - that classified as REPAYMENT.If you had to repay an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income for the year in which you repaid it. Or, if the amount you repaid is more than $3,000, you may be able to take a credit against your tax for the year in which you repaid it.Repayment is reported on the tax return for the year when it is repaid - thus if repayment is made in 2016 - it is reported on your 2016 tax return.
You will find information about HOW to claim a deduction or a credit for the repayment in IRS publication 525 -
www.irs.gov/pub/irs-pdf/p525.pdfsee page 34 for details and examples.
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