Received W2 and 1099 for lawsuit settlement. Confused about filing

[thrt19]

Hi,

I moved from CA to OR in February 2020

The settlement was for back wages and a settlement award earned between 2018 - 2019 when I lived in California. 

The lawsuit was not finalized and checks were not mailed until 2022. 3 checks were paid. 2 to me in my name and 1 paid to the attorney in their name for attorney fees

I received a W2 (for the back wages) and a 1099 (for the rest of the settlement). My W2 has California state taxes taken out). I'm confused what state taxes I pay on the 1099 and W2 amount since I earned this money in California, but received this money in Oregon.

I am also wondering if I am liable for taxes on monies paid to the attorney which came out of the settlement and if so, is this deductible?  The check to the attorney was made out directly to their law firm and isn't in my name.

Thanks for any help provided

[ErnieS0]

Your W-2 and 1099 are taxable California and Oregon because the money is tied to work your performed in CA but received while a resident of OR. Oregon will give you a credit for tax paid to CA.

I am confused why you received a 1099 issued to the attorney. Attorney fees for recovery of back wages are deductible for certain unlawful discrimination claims. Those amounts are generally included as part of your 1099.

If the 1099 issued to your attorney is not in your name or Social Security number then you don’t have to include that in income. If that represents your portion of the legal fees, then you would not have a deduction, because the amount is not included in your income.

[thrt19]

Thank you for the answer. This was a wrongful termination lawsuit which was settled. I guess I was mistaken in that the lawyer fees were part of the settlement amount which from what I understand from your reply I am responsible for. How do I go about entering this amount as a deduction if it is deductible? I do not see a way to input this. I have entered the settlement amount under Misc Income->Other reportable income but do not see how to add the deduction as a deductible. Thank you.

[DianeW777]

Legal fees for individuals, for the most part,  are not deductible beginning in 2018-2025 as part of the Tax Cuts and jobs Act (TCJA).  They were an itemized deduction in earlier years and may be again, but not now.  The law does not allow you to offset your income by these legal fees at this time.

• Can I deduct legal fees on my taxes?

Wrongful termination doesn't necessarily mean 'unlawful discrimination' which would need to be very clearly stated in your claim.  Check the details and ask your lawyer. 

• Fees related to unlawful discrimination claims are deductible on Form 1040.

If the proceeds were as a result of an employer discrimination lawsuit, you can deduct the legal expenses up to the amount of the proceeds as an adjustment to income. 

 Go to the Income and Expenses section of TurboTax

1. Scroll to  Less Common Income > Select  Miscellaneous Income, 1099-A, 1099-C
2. Select Other reportable Income > Enter a description and the amount of your legal fees as a negative number (-150 as example)

@thrt19 

[thrt19]

Got it. Thank you everyone.