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Right here. I don't look good naked anymore

"employer told them". Another indicator of employment insecurity for the employees, and full employment for those cleaning up the mess. I hear this type of thing daily, an employer is getting involved with an employees tax situation. "I want to make sure the employee does not owe at the end of year" is a good example. I sometimes try to suggest it is none of the employer's business and that offering tax advice can get them in liability, but I usually get rebuffed. As an aside, did you backup your data today? First call of the morning was from someone asking if I have a copy of their data as their computer went BSOD (blue screen of death). Folks, you can never backup enough since your income depends on it, and just as importantly, TEST your recovery process at least once a year. Backing up without testing is barely better than no backup at all.

The repayment will be reported in 2015. Since it is over $3k it can be taken as either a Misc Sch A deduction (not subject to 2%) or a Section 1341 Claim of Right. Here you recalculate the taxes for the previous year without the income that was later repaid, compare it to the current year's tax (without the deduction), and take a tax credit for the difference. See Pub 525. I had a client who had to repay so much leave time (employer kept paying her when paid leave ran out) that they had her repay it over 3 years. In two of those years the Claim of Right worked out better for them and they took the credit, the other year the Sch A deduction resulted in less tax.