Can't restore Time Machine backup to Macintosh HD
Since it says you need to reformat, what you need to do is:


Boot into the Recovery Partition
Click "Disk Utility"
Select "Macintosh HD"
Go to the "Erase" tab
Select the format as "Mac OS Extended (Journaled)"
Choose a security option from the security option section(I would recommend zero-pass since this is still your Mac) NOTE: If you have an SSD, the security options button will be disabled. This is normal
Hit "Erase"
It may take a while or be stuck. Don't worry. Give it time. The progress bars and estimated time on OS X suck
After it is done, close Disk Utility and go to "Reinstall OS X"
Select Macintosh HD and then proceed as if you were setting up a new iMac without your old backup