Lawsuit settlement

[Beet11]

I've already filed my taxes and I just received a lawsuit settlement check for a company I was employed with years ago. Check was created on 12/30/21. I knew nothing about this as it was sent to a relatives house which arrived just yesterday so I'm not sure if they received a prior notice regarding it. I received a W-2 wage and tax statement with the year 2021. Am I going to have to amend my taxes and add this on?

[Opus 17]

When did the check arrive in the mail box, when was the envelope canceled, and can you prove it?

There is an easy answer and a hard answer.

The easy answer is, file an amended return and report the W-2.

The hard answer is: the IRS follows the doctrine of constructive receipt.  If you did not receive the money in spendable condition until 2022, then it is 2022 income.  However, if you leave the W-2 off your 2021 tax return and don't amend, you can expect to get a letter from the IRS.  You would have to reply by explaining the situation, citing the doctrine of constructive receipt, and that even though the check was dated 12/30, the envelope wasn't canceled until 1/3 and you received it on 1/5 (or whatever); and letting the IRS know you plan to report the income in 2022.  They might or might not accept your argument.

(It becomes more complicated to win that argument if you knew before 12/30 that you had won the settlement and were just waiting for a check you knew was coming.)  

[DianeW777 · Accepted solution]

Yes, you must amend your 2021 tax return to include the additional W-2 income.  WAIT until your return has been fully processed before filing an amended return.  

The Form 1040-X is scheduled to be release on February 24, 2022 at which time you can amend your return.  Do not make any changes to the current return now and be sure to follow all the instructions before you begin your amendment.  As long as it is filed before April 18, 2022, there will not be any fines or penalties if you should happen to have an underpayment. Then again, you may have an additional refund, depending on your circumstances and income.

• How to amend a tax return already filed  Updated instructions will be coming when the form is ready to file and it should have e-file capability.

[Beet11]

Definitely sounds like a headache. I wish I would have known it was arriving before filing. This isn't my first time receiving a settlement check from a previous employer as to those I waited to file to make sure I have the proper documentation but this is the first that I just didn't know about. Thank you, I'm just going to amend it when the option is available.

[Ord1]

Hello, when you say you worked for the company years ago how long was that approximately? Like what year did you file with the employer?