@streetwolf wrote:
Thanks for the quick reply.
As I said the lawsuit is sort of a class action thing. There were something like 100,000 folks who signed aboard. Bayer decided to settle instead of having to go to court. I don't know if getting cancer constitutes a physical injury. I've made no deductions for medical treatment related to my cancer. My gut feeling is that the settlement was more punitive as Bayer admits no responsibility for Roundup causing cancer. Would you agree it's probably punitive therefore I would have to pay tax?
If I do get a 1099-Misc will that have all the info I need to file my taxes correctly if they only include what I actually received from the settlement? My wife used to work as a manager of accounts payable at a large company and when she had to cut a settlement check and issue a 1099-MISC it was only for amount actually received. I suppose this would be the best thing to happen as you stated.
Yes, cancer counts as a physical illness or injury, and the settlement is at least partly for that injury. Since this is a voluntary settlement, it is unlikely that any portion represents punitive damages (since that would require a finding of fault) or interest (since that would also require a court finding). *Punitive means punishment. A company would never voluntarily pay punitive damages because that would be admitting wrongdoing. They might be forced to pay punitive damages in a jury trial, but I would not expect voluntary punitive damages. Compensation for lost wages or lost income due to being out of work would also be taxable. But your attorneys would know for sure. I suspect this is purely on the cancer angle.
If you previously paid cancer-related medical expenses from a tax-free HSA or MSA or FSA, that portion of the settlement is a taxable recovery (since it is a reimbursement of a past deduction). if you previously deducted your cancer-related medical expenses as itemized deductions on schedule A, then a portion of the settlement may be taxable under the "tax benefit rule". Rather than explain all these things in detail now, I'll let you ask the follow up question IF you did in fact pay for your medical expense in one of these ways.
I would expect a 1099-MISC to be issued because the payor can't take responsibility for the specific tax situation of every payee. It's up to you to deal with the paperwork. There are three ways of handling a 1099-MISC for income you believe is non-taxable.
- The IRS recommended way. Don't add the 1099 to your tax return. File by mail--don't e-file. Attach a copy of the 1099 and a letter of explanation as to why the income is non-taxable. Don't attach other proof at this time, but keep proof for at least 3 years, since the IRS may send a letter asking for more details.
- How to still e-file. Add the 1099 to your tax return under "other uncommon income", then add a second item of "other uncommon income" in a negative amount to offset the settlement. Call it "non-taxable settlement adjustment." You can e-file. The IRS may send a letter asking for an explanation of this negative income item, then you would send a letter of explanation with copies of your proof.
- The lazy way. Leave the 1099 off your return and make no adjustment. You will guaranteed get a letter explaining you skipped some income, and assessing back taxes and penalties. You would reply with a copy of the 1099, your letter of explanation, and other proof of the settlement and your cancer. I don't recommend this, because you don't want to get this letter.
In all cases, keep documentation of your diagnosis and the lawsuit for at least 3 years from the filing date (April 15, 2022) and preferably keep your documents for 6 years.
