It seems like the offset should only happen when W2 and 1099 MISC overlap with each other, but why is that even allowed? What's a clear way to tell whether they overlap or not?
For my case, I received both W2 and 1099 MISC from a lawsuit settlement. Although the amounts are the same, one represents wages, and the other non-wages, according to the summary on top-right of the letter (which contains both W2 and 1099 MISC).
Doesn't seem like I should manually enter the negative amount of 1099 MISC under "other reportable income"?
Because:
1. It will negate the tax from adding 1099 MISC which didn't have tax withheld on its own. As said, my W2 and 1099 MISC don't seem to overlap, therefore I prob should pay tax on both of them. (When I tried offsetting it though, my tax was reduced by about $3000.)
2. If I check "back wages" and fill in that (full) amount on 1099 MISC, it will reflect as negative value under other reportable income (which is the same category the offset would be entered). But it seems to be hidden until a manual offset is entered (unsure why). As a result, the negative amount generated through back wages incurred a self employment tax of ~$300. (As answered by previous posts, seems like this is a clear sign I shouldn't check "back wages".)
At first I was very confused by the same negative value under "tax payer/spouse amount" causing very different results: through "back wages", it increased tax by ~$300, while through manually offsetting, it decreased tax by $3000. But I guess it's because the two numbers have different contexts.
Still unsure whether the 1099 MISC (attorney fee) can be deducted or not. And if it can be, how much should I put? (It must be the 3. other income on 1099 MISC right? Since that's the only number on that form).
