@BrandonSF wrote:
It was also a 1099, not a W2.
In your original question you wrote "I received a W2." That was misleading. Details matter.
There is no plain Form 1099. There are about 20 different kinds of 1099 forms. All 1099 forms have one or more letters after the 1099. What kind of 1099 do you have? Is it 1099-MISC, 1099-NEC, or something else? If it's a 1099-MISC, which box is the income in?
Misidentification in a background check doesn't sound like unlawful discrimination to me. IRS Publication 525, which I referenced above, says that the deduction only applies to claims "under various provisions of federal, state, and local law listed in [IRC] section 62(e)" (and a couple of other situations that clearly do not apply to you). I suggest that you ask your lawyer what the basis is for saying that the fee is not taxable. Ask the lawyer, not someone in the office who is not a lawyer. You might get some other opinions from other people here. You might also want to consult a local tax professional.
Based on your revised description, I now assume that the award was not for lost wages. If the form that you got is a 1099-NEC, and the lawsuit does qualify for the unlawful discrimination deduction, there are some additional complications in reporting it on your tax return.
