Within your paypal account, you can view recent transactions, and next to the one where you received money from the buyer, you can "issue refund" under the order status/actions bar. Of course after you get the item back into your posession. Buyer pays return shipping unless it's your wife's fault.
There also may be an "issue refund" type button on eBay too, but I'm not sure. There will need to be someway for PayPal to communicate to eBay that the item was returned so you wouldn't have to pay seller fees. Maybe it does that automatically? I'm not 100% sure on this, someone else chime in! :P