Further Update:
Given the software grabs information from Federal to import to California, I combed through that.
1) Federal Taxes 1040 Schedule 1 Part 1 populates fine, but in Part 2, it has a random deduction listed ("Deductible part of Self- Employment Tax"). I looked to find where that number came from.
From IRS, its supposed to generate that deduction from equations on a chart Schedule C, which TurboTax didn't populate in my return. This is intended to figure out your taxes if your working for yourself as a business like a contractor or something, probably not for class action lawsuit settlements for back wage OT calculation errors, especially if its claimed as other income directly above in Part 1 and labeled as such.
This webpage seems to think it should just be treated as wages. But it blatantly states that it's not the law on page one.
https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf
My proposal to TurboTax: To avoid errors later in the case a 1099-MISC is a lawsuit for back wages, maybe skip the self employment deductions section if the wages were from a W-2 corporate employer. That way it would populate correctly in the State return, and I wouldn't have to forgo my EITC. Maybe make a question if the 1099-MISC pertains to self employment, or something else?
2) There was a form 8919 that was supposed to populate to pay fair share of social security and medicare for 1099-MISC if you were not an independent contractor. It forgoes schedule C in the instructions, so I assume this is a potential route to pay tax on non-contractor 1099-MISC. Maybe someone in TurboTax could look into that as well, so others (albeit a small percentage) of people who received a tax settlement as a W-2 employee can keep other qualifying deductions.
I already submitted my Fed, so I'm stuck this year, but maybe this can help others.
