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rbradshaw1
New Member

Just received money from court judgment for back pay due for 2013 plus prejudgment and postjudgment interest. Can I use TurboTax for this?

 
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Opus 17
Level 15

Just received money from court judgment for back pay due for 2013 plus prejudgment and postjudgment interest. Can I use TurboTax for this?

I don't believe it is correct to amend a past return for back pay.  Income is taxed in the year it is paid, regardless of when it is earned.  (And, since tax was not withheld at the time, even if it was proper to report the income by amending your 2013 tax return, you would owe 4-1/2 years of late fees and interest on top of the tax you owe.)

Yes, you can use Turbotax.  Report the money as 2018 income on your 2018 tax return, since that's when it was actually paid.  In a perfect world, you would receive a W-2 for the back pay part of the settlement, with payroll taxes (social security and medicare tax) deducted and accounted for, and you would get a 1099-INT or 1099-MISC for the interest.  Simply enter both forms.

If you don't get a W-2, you can still use Turbotax.  You would split the settlement between interest and wages, and for the wages part, you run through the W-2 section and then check a box for "I did not receive a W-2 but should have."  You will pay an extra 7.65% social security and medicare tax, but you won't have to pay the full 15% self-employment tax on top of the income tax.  The interest part is reported separately as interest income.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*

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4 Replies
Carl
Level 15

Just received money from court judgment for back pay due for 2013 plus prejudgment and postjudgment interest. Can I use TurboTax for this?

Yes, but I don't recommend it, depending on what kind of tax reporting document you get for it, come tax time. Generally, court settlements paid are reported on a 1099-MISC. Back pay is taxable. But if you pay tax on it in the current tax year that could increase your tax liability quite a bit for that current tax year. With back pay from previous years, you can amend that return and claim the back pay for that tax year on that amended return. If tax was not withheld from the settlement, then you'll pay taxes on it for that past year, and not affect your AGI for the current year.
So to answer your base question again, I say "YES", but I don't recommend it. Instead, you should seek the legal advice of a CPA in your local jurisdiction so that you can see what is best for your specific situation.
SweetieJean
Level 15

Just received money from court judgment for back pay due for 2013 plus prejudgment and postjudgment interest. Can I use TurboTax for this?

Back pay may be on a W-2.
Opus 17
Level 15

Just received money from court judgment for back pay due for 2013 plus prejudgment and postjudgment interest. Can I use TurboTax for this?

I don't believe it is correct to amend a past return for back pay.  Income is taxed in the year it is paid, regardless of when it is earned.  (And, since tax was not withheld at the time, even if it was proper to report the income by amending your 2013 tax return, you would owe 4-1/2 years of late fees and interest on top of the tax you owe.)

Yes, you can use Turbotax.  Report the money as 2018 income on your 2018 tax return, since that's when it was actually paid.  In a perfect world, you would receive a W-2 for the back pay part of the settlement, with payroll taxes (social security and medicare tax) deducted and accounted for, and you would get a 1099-INT or 1099-MISC for the interest.  Simply enter both forms.

If you don't get a W-2, you can still use Turbotax.  You would split the settlement between interest and wages, and for the wages part, you run through the W-2 section and then check a box for "I did not receive a W-2 but should have."  You will pay an extra 7.65% social security and medicare tax, but you won't have to pay the full 15% self-employment tax on top of the income tax.  The interest part is reported separately as interest income.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Carl
Level 15

Just received money from court judgment for back pay due for 2013 plus prejudgment and postjudgment interest. Can I use TurboTax for this?

One thing is, depending on the terms of the settlement, a corrected W-2 for the tax year in question could be issued. It just depends, and it's just not possible to make a call here really, without knowing more. But regardless of the call, TurboTax can be used. But the complexity or simplicity of the situation just depends on all factors involved, which we don't know about, and it's perfectly possible the recipient may not know about either.
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