Get your taxes done using TurboTax

Yes, your best course of action would be to get the 1099-MISC corrected, since the IRS will receive a copy and expect to see it on your return.  

If you are not able to get a corrected form issued, an alternative would be to enter this 1099-MISC in TurboTax.  The amount will be transferred to line 21 of your 1040.  Then, to correct, you will navigate to: 

  • Personal Income tab (in the Home & Business program)
  • Less Common Income Section 
  • Click Start next to Miscellanous Income 1099-A, 1099-C
  • Click Start next to Other reportable income

You'll be asked Did you receive other reportable income?  You'll answer yes.  On the next screen, you will enter a negative amount equal to the amount reported on the 1099-MISC, along with an explanation in the Description box (e.g. Incorrect 1099-MISC received for personal injury settlement).  This negative amount will then be transferred to line 21 of the 1040 and "zero out" the previously-reported 1099-MISC.  This will result in the correct tax treatment, while also properly reporting the 1099-MISC.  

You mentioned that the taxability was confirmed by your attorney, but please make sure that this was not an amount that represents punitive damages, as they are taxable, even if the punitive damages were received in a settlement for personal physical injuries or physical sickness.