Should I include proceeds from this kind of settlement in my income ?

[dj2]

IRS Pub. 4345 doesn't help answer whether proceeds from a Settlement is to be included in income.  I did not receive a 1099 and the ftc.gov/refunds page is of no help either.

I don't know if I'm supposed to report it under the Miscellaneous Income heading-> click  Other Reportable Income. IRS  Pub. 4345 states the settlement proceeds are reportable in my income but that depends on facts and circumstances in the case.     

The only facts and circumstances I know about the settlement was a letter included with the check that said according to the Federal Trade Commission, LifeLock violated a court order and made misleading claims about its services and that they failed to properly secure their customer's data. Because I was a LifeLock subscriber during the years 2012-2014, I am getting this check.

I can't make a determination whether this payment is supposed to consist of allocations for say, emotional distress and mental anguish under IRS Pub 4345. The publication makes it sound like I'm supposed to have to pour through records of Federal courts and after I find the case, read the dockets and court case file.  
Seriously?

[ColeenD3 · Accepted solution]

If you don't know what type of settlement it is, it is difficult to lead you in the right direction. I doubt it is for emotional distress. It is more than likely taxable.

They often are, but it depends upon the type of settlement. The settlement type will be listed in your Final Settlement Agreement.

Physical injury or sickness settlements (dog bites, mesothelioma, etc.) are non-taxable and don't need to be reported unless you deducted medical expenses related to the injury on a previous tax return and you received a tax benefit from the deduction. In that case, report the medical expenses related to the incident as miscellaneous (other) income.

Punitive damages are taxable except in certain wrongful death cases, as are awards for employment discrimination and injury to reputation (libel, slander, or defamation).

Emotional distress and mental anguish settlements are taxable, but only on the amount above and beyond the undeducted medical costs for treatment of the distress or anguish. You'll need to paper-file your return so you can attach a statement that shows the settlement amount minus the (undeducted) medical expenses related to treatment.

IRS Taxabilty

Where to enter: Settlement

@dj2

[Teachdog3500]

I am a National Union Rep for a union. My primary job is with the government and I get my full salary there. I am given $650 per month from the Union for my expenses and as a stipend. When I ry to enter this information, TT is asking questions I have never seen before.

1)Schedule C: Accounting Method must be entered? Cash, Accrual, or Other
2)Did you materially participate in the operation of this business in 2019? If no, see instructions for limit of loses????
3)Did you make any payments during 2019 that would require you to file a 1099?
Is this activity a qualified trade or business under section 199A?
4) Principle Business Code?

When I tried to fix these questions, it says I am not allowed to E-file...

Any advise would be appreciated....

Thank you

[ColeenD3]

Much of the time a stipend is paid to a student to offset education expenses. However, in your case, it is more likely this definition.

A stipend is a predetermined amount of money that's paid to trainees, interns, and students to help offset expenses. Stipends are often provided to those who are ineligible to receive a regular salary in exchange for the duties they perform. A stipend is generally lower pay than a salary.

Since you will want to recoup your expenses that this amount paid for, you can enter it on Schedule C, as you are doing.

The answers to your questions are:

1) Cash method

2) Yes, you materially participate

3) No, no 1099s

4) 541600 Management, scientific, & technical consulting services is as close as you're going to get

@Teachdog3500