Received a 1099-Misc for a Settlement for back wages

Forum|Forum|5 years ago
March 1, 2021
2 replies
18 views

I am self-employed now but used to work for an employer 5 years ago. There was a class action lawsuit of for back wages and and I received a settlement. I got a 1099-misc and a W-2 from the lawyer's office. I have amounts in Box 3 "Other Income" and Box 10 "Gross proceeds paid to an attorney".

TurboxTax says that there is a problem with my taxes and is asking for a "Link to Schedule C" for Box 10. I have no idea what they are asking for and when I finally got to talk to someone at TurboTax after about a 2 hour wait, the guy's phone dropped the call.

This shouldn't be considered business income since it wasn't from my business so why is it asking me to link to a Schedule C. Also, how do I link to a Schedule C?

I really don't know what to do here and I hope someone can give me an answer.

TurboTax Self Employed Online

DavidD66

Level 15

You are correct, it is not self-employment income. It should not be linked to a Schedule C. Since the settlement was for back wages, it should have been reported on a Form W-2. To report in TurboTax Online, while logged in to your return:

Type "Other Income" in Search
Click on "Jump to other income"
Answer "Yes" to "Did you get a 1099-MISC?"
Enter the information on your 1099-MISC
Enter the total amount in Box 10 as "Taxable Attorney's Fees" (Attorney's fees received in a settlement in an employment dispute are taxable to the plaintiff, even if the fees are paid directly to the attorney.)
Enter "Back Wages" or similar to Describe the reason for the 1099-MISC
On the screen with "Does one of these uncommon situations apply?" Mark the button for "This was money from a lawsuit settlement"
Answer Yes to "Was any part of the lawsuit settlement for back wages?"
Enter the amount you received that was for back wages
Click on "Continue"
Leave the blank empty on the page "Self-Employed" Income, and click on "Continue"

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Opus 17

Level 15

I don’t believe the above answer is correct. The customer states that they received a W-2 and a 1099. The W-2 is for the portion of the settlement that represents wages. The 1099-MISC represents other monies that were paid as part of the settlement that were not wages. For example, this might represent punitive damages, interest on the money due over several years, and in this case, the employer paid the attorney‘s fee directly to the attorney. Unfortunately, the total settlement is taxable to the taxpayer, even including money that was paid directly to the attorney that the former employee never receives. There used to be a deduction for this type of attorney fee but it was eliminated in the 2018 tax reform law.

turboTax expert @WendyN2 appears to have the correct solution to how to enter this type of 1099.

https://ttlc.intuit.com/community/business-taxes/discussion/1099-misc-box-10/00/1863112

rjeanpaul03Author

Level 2

Thank you very much. Yes, this was the answer to my question but the solution @WendyN2 did not work for some reason. I followed the steps, but when finalizing my return, it is TT is still asking for a Schedule C but this time in Box 3.

When I try to do it again, and go through the process TT requires me to list "lawsuit settlement" as a reason for the income and then it adds it to my self-employment income. It's treating my lawsuit settlement as a business and is requiring me to answer questions like how long have I been in business. I really don't know what to do.

monicaagarcia711

Level 2

Had the same issue. They took my paymentvthen wouldn't allow me to move forward without explanation or refund??

Irene2805

Level 15

The reason a Schedule C was created was because of the entry in Box 10 - Gross Attorney's fees.

According to the instructions for 1099-MISC, report in box 10 fees "made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement"

A few screens after the 1099-MISC entry screen you will see Enter Taxable Attorney Fees. Enter zero in the box and click Continue. [See Screenshot below.]