It depends on the type of settlement proceeds you received and what they represented. If you received punitive damages, this would be taxable income, and often a Form 1099 would be issued. The taxable amount would be entered in the Other Common Income section or Less Common Income, Miscellaneous Income, regardless of whether a 1099 was issued. When you get to the screen that asks, "Does one of these uncommon situations apply?", check the "lawsuit settlement" box.
Property settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement. If the property settlement exceeds your adjusted basis in the property, the excess is income.
Settlements to reimburse you for personal physical injuries or sickness are normally not taxable unless you previously deducted the related medical expenses.
Information returns for lawsuit settlements that include both back wages and other damages typically consist of both a Form W-2 for the back wages, often showing taxes withheld, and a Form 1099 for the rest of the distribution.
Please see IRS Publication 4345 for more information.
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