Is the entire amount on the Form 1099-NEC reimbursement for attorney's fees? If so, I think they should have reported it on a 1099-MISC, not a 1099-NEC. But here's how you can enter it in TurboTax. You didn't say whether you are using TurboTax Online or the CD/Download TurboTax software. This can only be entered in the CD/Download software because it requires entries in forms mode. TurboTax Online does not have forms mode.
- Click the Federal Taxes tab.
- Click Wages & Income.
- On the screen "Your 2020 Income Summary" scroll down to the section "1099-MISC and Other Common Income." Click the Start button for "Income from Form 1099-NEC."
- Did you get a 1099-NEC? - Click Yes.
- Do You Want to Enter Your 1099-NECs Now? - Click "Add a 1099-NEC."
- Enter the payer's name and federal ID number, and the amount of the payment in box 1. Click Continue.
- Describe the reason for this 1099-NEC - Enter a short description, such as "Attorney fees" or "Lawsuit settlement." The description that you enter will not appear on your tax return. Click Continue.
- Does one of these uncommon situations apply? - Select "This was money from a lawsuit settlement."
- Was any part of the lawsuit settlement for back wages? - Select No. Click Continue.
- On the next screen, "1099-NEC Summary," click Done.
- The next screen says "Looks like we're missing some info." Click Continue.
- The next screen says that the 1099-NEC will be deleted. Click No. This returns you to "Your 2020 Income Summary." The 1099-NEC has not been deleted.
- Click the Forms icon at the top to switch to forms mode.
- In the list of forms on the left, there will be a red exclamation point next to the 1099-NEC Worksheet, and it will say "Not Done." Open the 1099-NEC Worksheet if it has not appeared automatically.
- In box 1 of the Form 1099-NEC Worksheet, the Schedule C line will be shaded pink. A few lines below that, still in box 1, click the Other Income checkbox. The pink shading, the red exclamation point, and the "Not Done" will all disappear.
Now open the "Form 1040 or Form 1040-SR Worksheet" (1040/1040SR Wks). Scroll down to the Schedule 1 section (Additional Income and Adjustments to Income), then to Part II Adjustments to Income, and then to the Other Adjustments to Income Smart Worksheet between lines 21 and 22. The attorney fees are entered on line H of the Smart Worksheet. In the text entry box on the left side, right after the H, enter UDC. Enter the amount in the space on the right. The letters UDC and the amount will then appear on the dotted line to the left of the amount on line 22, and the fees will be added to any other amount that was already on line 22. The same notation, UDC and the amount, will appear on line 22 on Schedule 1.
The amount from the 1099-NEC will be reported as other income on Schedule 1 line 8, and it will be entered as an adjustment (i.e. a deduction) on Schedule 1 line 22. The net result is that it is not included in your Adjusted Gross Income (AGI) on Form 1040 line 11, so you do not pay tax on it.
