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Punitive damages, liquidated damages, compensatory damages for nonphysical injuries or sickness (e.g., emotional distress) and any taxable damages other than amounts constituting wages are reported by a business payor on Form 1099-MISC.
Legal settlements that are taxable (including previously-deducted medical expenses related to physical injury or illness) are entered as miscellaneous (other) income.
When you received a 1099-MISC, follow these steps to report the income:
If you didn’t receive a 1099-MISC, follow these steps to report the income:
Interest earned on settlements is taxable income and should be entered as a Form 1099-INT.
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