Yes. You should amend your return to include the settlement received by your wife. Use the steps below to report both the income and then the withholding. Read all the instructions before you begin.
Legal settlements are reported as "Other Taxable Income." You may or may not receive a 1099-MISC reporting the income. Regardless, this is how you should enter it:
• Select Federal Taxes
• Select Wages and Income
• Scroll down and select Show More at Other Common Income
• Select Start/Update next to Income from Form 1099-Misc.
• Answer Yes to the question Did you get a 1099-MISC? (even if you didn't get one).
• Complete the top part and then enter the award amount
• Enter a reason for the 1099-Misc.
• Select "This was money from a lawsuit settlement" on the "Does one of these uncommon situations apply?" screen
If necessary use these steps to enter your withholding (do not enter it twice in two different locations):
You can add additional federal (and state) withholding using the following steps.
- Sign into your TurboTax account > once inside the return select Deductions and Credits at the top
- Scroll to Estimate and Other Taxes Paid > Show More > Start/Revisit beside Income Taxes Paid > Scroll to Other Income Taxes Paid in 2020
- Continue to Start Withholding not already entered on a W-2 or 1099
This will allow both federal and state additional withholding not entered in any other location.
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