Back pay wages are reported on the Form W-2 in the year that they are paid.
Settlement fees are generally reported on the Form 1099-MISC in box 3 or box 14. Either way, the legal fees are considered taxable income to you, and should be reported on line 21 Other Income of the Form 1040 Schedule 1.
You will enter the Form W-2 in the income tax section of your return. To enter the legal fees do the following:
- Select the Personal Income or Wages and Income tab;
- Click the "I'll choose what I work on" button;
- Scroll to Other Common Income
- Click Start next to Form
1099-MISC
- Enter your
Form 1099-MISC income exactly as
shown on your form. Your entries should mirror the form
1099-MISC. DO NOT check
the FATCA box.
- Enter Legal Fees as the reason, then click Continue
- Check None Apply from the uncommon situation list
- Continue
navigating through the prompts
- Select
"No" to questions regarding work
and earned money
- If you do
not have any other Form 1099s to report, select "No" then Continue
Prior to the Tax Cuts and Jobs Act, legal fees were deducted under the Job Expenses and Certain
Miscellaneous Deductions section
of the Form 1040 Schedule A. These deductions were reduced by 2% of a taxpayer's
gross income. Tax reform has eliminated the Miscellaneous section; therefore, legal fees are generally no longer deductible.
However, you can deduct your above the line legal fees in employment and qualifying whistleblower cases. The amount cannot exceed the income you received from the litigation in the same tax year.
To enter the legal fee in TurboTax do the following:
- Select the Deductions and Credits tab
- Click I'll choose what I work on
- Scroll down to Legal Fees, click Start then Continue
- Enter the amount of the legal fees up to the award you received
- Click Continue, then Done.
[Edited
04.10.19 | 12:28 PM]
