1099-MISC Box 14 Employer's penalty called atty's fees; how to escape paying SE tax

[sheeshthisishard]

Terminated by employer 2017; balance CA vacation pay unpaid until 2018.  Late fees paid in 2018, 1099-MISC states income in Box 14 is Atty's fees; must claim on Schedule C.  How do I avoid paying SE taxes because I was NOT self-employed.  How and where do I enter this information?

[Critter-3]

The 1099-misc with box 14 filled in for attorney fees should have been addressed to the attorney not you ... tell them they made a mistake and to correct it. 

[Critter-3]

Wait a second ... are you just now filing a 2018 return ???    If so the issuer will not make the correction this late in the game  so  your only option is to made a line 21  "in and out" entry   ....

Reporting this in TurboTax will be a two-step process, first to include the 1099-MISC as income and then to make a negative adjustment to remove it. 

To include the 1099-MISC as a part of your tax return, follow these steps:

• On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
• This opens a box where you can type in “1099-MISC” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
• The search results will give you an option to “Jump to 1099-MISC"
• Click on the blue “Jump to 1099-MISC” link
• Answer Yes you did receive a 1099-MISC
• Fill in the details from your 1099-MISC then click Continue
• Provide a short description for the reason you received the 1099-MISC then click Continue
• On the next screen titled, “Does one of these uncommon situation apply?” choose the last option, None of these apply and then click Continue
• On the next screen asking if the 1099 involved work like your main job, answer No and click Continue
• On the next screen, check the box that you received the income in 2019 and then click Continue
• Finally, choose “No, it didn’t involve an intent to earn money” and click Continue
• Answer the questions on the next couple of screens to finish the process

Now the income shown on the Form 1099-MISC has been added to your return.  Next, it will be “removed” from the return.

Follow these steps:

• Go to Federal Taxes > Wages & Income and scroll to the bottom of the screen to the Less Common Income section (expand the section by clicking Show More if necessary)
• Click Start or Update beside Miscellaneous Income, 1099-A, 1099-C
• Scroll to the bottom of the list and click Start or Update beside Other Reportable income
• Answer Yes to move forward
• Enter a brief description, such as “settlement refund adjustment,” and the amount reported on the 1099-MISC as a negative number then click Continue
• Click Done

[sheeshthisishard]

We didn't receive employer's penalty payment until not quite three years ago.  I believe the statute of limitations is still running; however, we do not expect employer to help.  The payment declared on the 1099-MISC was the equivalent of 30-days' wages because employer refused to pay balance of vacation pay for almost a year.  No attorney was involved.  Had to sign waiver not to sue.  Could not collect unemployment because wages were overstated, could not verify income.  Took almost two years to straighten that out and could not file tax return until corrected W-2 was issued.  Asked employer to pay penalty withOUT my going to CA agency to demand it.  Mom died same time as forced retirement/layoff.  Sister died, son murdered soon before.  Dealing with audit, illness, and did not notice strange 1099 when it arrived in 2019.  Playing catch-up.  Tax-preparer wife also ill.  Our understanding is that the penalty payment is taxable AND our questions are:  (a) because I could not collect unemployment and also suffered LOTS of trauma dealing with bureaucratic nightmare of change in accounting firms at time of my termination and inability to get new firm to give me accurate accounting, we feel this payment should NOT be taxable, (b) instructions say to enter 1099-MISC income on Schedule C, which automatically brings up SE tax.  I was NOT self-employed.  Even if this payment IS income, I definitely do NOT want to pay SE tax on it, and (c) the way the software works, we do not get full credit for our new EV bought in 2018 AND we are not allowed to benefit from carry-forward of solar installation from 2017 because it appears that these two credits are not allowed to offset the new income and SE taxes.  Final question:  Does your reply below still hold? putting it in and then taking it out? (I sincerely hope so)!  I am most grateful for your attention and expertise.  Thank you.

[sheeshthisishard]

BTW, this penalty payment was received in 2018, not 2019, if that makes a difference.

[Critter-3]

Seek local professional assistance  for this issue  OR  upgrade to one of the LIVE options.