If you received an IRS form 1099-MISC with a Box 8, Substitute payments in lieu of dividends or interest, this means that your broker lent out your shares to a short seller. The 'substitute payments in lieu of dividend or interest" is the short seller making you whole for the dividend collected while he held the stock.
Substitute payments in lieu of dividends or interest do not qualify for favorable tax rates on qualified dividends. The payment will not offset dividend income. The payment will be reported as other income on line 8z on Schedule 1 Additional Income and Adjustments to Income.
@JohnB5677 here says you may be able to report the income as a self-employment activity with expenses charged against the income.
When you run through the questions, you will come to a question about whether you intended to make money. If you did intend to make money, then it will tax your money as a business and apply the Self-Employment Tax. You can then deduct your expenses if you have any. If you did not intend to make money, then the program will just add the income as ordinary income with no Self Employment Tax.
@MAC18
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