I'm often confused about whether to use setoff, set-off, set off, or offset. All these terms can refer to reduction of one amount by another.
Black's Law Dictionary (7th ed.) defines setoff (the noun) as "A defendant's counterdemand against the plaintiff, arising out of a transaction independent of the plaintiff's claim," or as "A debtor's right to reduce the amount of a debt by any sum the creditor owes the debtor; the counterbalancing sum owed by the creditor." The noun can also be written set-off.
Note that neither setoff nor set-off is a verb. If you want a verb, write it as two separate words: set off. Black's definition of set off suggests that it's synonymous with counterclaim or offset.
According to Black's, offset (the noun) means "Something (such as an amount or claim) that balances or compensates for something else; SETOFF."
There's also a verb offset, which means "To balance or calculate against; to compensate for <the gains offset the losses>." Bryan Garner's Dictionary of Modern Legal Usage suggests that the verb offset "is generaly inferior to set off, although it cannot rightly be condemned as an error."
I may still be confused about this, but here's what I draw from these reference books:
- If you want a noun referring to any reduction of one amount by some other amount, the noun offset is okay.
- If you want a noun referring specifically to reduction of the amount owed by debtor to creditor by some other amount that the creditor owes the debtor, use the noun setoff or set-off. While offset would not be a mistake, setoff or set-off would be more precise.
- If you want the verb form of setoff or set-off, make it two unhyphenated words: set off.
- If you want a verb that's more general than set off, one that describes anything that mitigates something else, use the verb offset.
- When in doubt, write offset; you may be less precise than you could have been, but you won't be wrong.