If it is taxable, you can enter it in other reportable income. If you didn’t receive a 1099-MISC:
- Sign in to TurboTax and open or continue your return.
- Search for lawsuit settlement and select the Jump to link.
- Answer Yes to the question Any Other Taxable Income?
- If you've already entered miscellaneous income, select Add Another Miscellaneous Income Item.
- Enter a brief description and the amount you received and select Continue.
But it might not be taxable. Whether you must include the settlement proceeds in your income depends on all the facts and circumstances in your case. A settlement payment may consist of multiple elements that have been allocated by the parties. For example, an agreement may include allocations to back pay, emotional distress, and attorneys’ fees. Generally, the IRS will not disturb an allocation if it is consistent with the substance of the settled claims. The key question to ask is: "What was the settlement (and its corresponding payments) intended to replace?"
IRS Fact Sheet on Settlements
Legal remedies and tax implications
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