You will have to report the amount on this 1099-MISC as income, because it's being reported to the IRS. It will appear on
your Form 1040 as "Other Income" on Line 21. Then, you will report a
corresponding negative amount on line 21 to zero out this income.
To report the income:
- Enter
the 1099-Misc in the Other Common Income section (Enter
"1099misc" in the Search Box and Select "Jump to
1099misc")
- Indicate
that it is a "Reimbursement for Damages", that it does
not involve work like your main job, and that it
did not involve an intent to make money, and is not a recurring payment (received in the past or expected in the future).
- The
income will be reported on line 21 of your return.
To enter the expense:
- Go
to Less Common Income, Miscellaneous Income and Other reportable income
(enter "other reportable income" in the Search Box and Select
"Jump to other reportable income")
- Continue
to the screen "Other Taxable Income". Enter the description as "Cost of Damages" and the amount as a negative number. These are NOT wages.
A corresponding negative amount will be entered, and
line 21 will be zero. See the attached screenshot example (different
descriptions, but still offsetting).
