Yes, the 1099-NEC is correct for the wages, but you should have received a 1099-MISC for the non-wage payment. You need to mark that the 1099-NEC was received for a Lawsuit Settlement and that a portion of it was for back wages. You will want to delete the Schedule C and 1099-NEC entry you have already made and re-enter the 1099-NEC.
To delete your 1099-NEC you can follow these steps:
- Within your return, click on Tax Tools in the black menu on the left side of the screen.
- Click on Tools.
- Click on Delete a Form.
- Scroll down to your Form 1099-NEC and click Delete.
- Under Federal in the black menu bar click Wages & Income to get back into your tax returns.
To re-enter the 1099-NEC and enter the expense to offset the income you can follow these steps:
- Sign in and open or continue your return.
- Search for 1099-NEC and select the Jump to link.
- Enter the information in full from the 1099-NEC and Continue
- On the Describe the reason for this 1099-NEC screen enter Lawsuit and Continue
- Choose This was money from a lawsuit settlement
- Answer Yes on the ...back wages pop up and enter the portion of the payment that was in lieu of wages
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