Hello Experts,
I am preparing taxes for a family member. He lost his job in 2021 and filed a claim with his employer for wrongful termination. They were able to resolve all disputes without litigation after mediation in 2022. Employer finally paid $100,000 (the “Settlement Amount”). Lawyer had contingency fee as 40% of Settlement Amount
As per agreement, Employer paid amount in 3 checks.
- Check 1 - $30,000.00 payable to Employee. W-2 was issued to Employee
- Check 2 - $30,000.00 payable to Employee. 1099-Misc was issued to Employee
- Check 3 - $40,000.00 payable to Attorney. Employer was supposed to issue 1099 Form.
Question
- For check 3, do we need to report this in our Taxes or Attorney will do it in his taxes?
- If yes, how should we report it? 1099-Misc?
- Can we deduct $40,000 somehow as a lawyer fees?
- Shouldn’t this ideally be reported by Lawyer since my family member never got that money?
