Unfortunately, the IRS will not allow a deduction into an annuity from a legal settlement. The entire amount is income for tax purposes. The Form 1099-MISC will not be recorded as a retirement distribution on the tax return and therefore the ten percent penalty will not apply.
There are options if you have a balance due you are unable to pay in full. You are allowed to file a Form 9465 later if you want to request an installment agreement. Or you have time to make a plan to pay it in full by April to avoid any late payment penalties.
Enter your legal settlement by following the steps in the article below.
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