As a result of a class action lawsuit settlement, I received both a W-2 (taxed) and 1099-MISC (not taxed) from my former employer. When I entered the W-2 portion, it adjusted my refund accordingly. When entering the 1099-MISC, TurboTax asks, "Was any part of the lawsuit settlement for back wages?" Each answer results in a different tax amount. When I answer yes, it reduces my federal refund by $424. When I answer no, it reduces my federal refund by $252. Since the 1099-MISC does not include any back wages, should I answer "no"? It seems like I am being double taxed if I answer yes, but that is technically the correct answer to the question.
