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Form 1099-NEC is used to report non-employee compensation. If the income being reported to you is not compensation and is not taxable, then it should not be reported on that form. So, TurboTax is probably reporting the income correctly based on the form that it is reported on.
It is possible that the income reported to you should be reported on a form 1099-MISC, but we would need to know more about the income to be more specific.
To clarify, form 1099-NEC is reporting liquidated damages due to the company failing to pay final owed wages on time. Per CA Labor Code 203 and IRS Guidance CCA [social security number removed], Liquidated damages for this purpose is not consider taxable wages.
If the income is not taxable, you would need to enter it as you normally would based on how it is reported on the 1099-NEC form and then enter a negative amount to Other Income to cancel out the income.
This is so that the IRS will be able to match their copy of the 1099 form to an entry on your tax return. The IRS will assume the income is taxable based on how it is reported on the 1099 form, so that is why you have to report it properly on your tax return.
You can use the following menu tabs in TurboTax to report the negative adjustment to income:
Enter a description for the entry (IRS code abbreviation) and the amount as a negative number.
It is recommended that you mail your return in and include a memo as to why you adjusted the income. If the IRS determines that you are wrong, the memo may protect you from penalties for underpayment of tax. It may also prevent the IRS from holding up the processing of your tax return.
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