1099-Misc

Enter the 1099 exactly as you received it. There should be a list of special circumstances in the box you can check for “lawsuit proceeds”.

 

If you with a plaintive, then the entire settlement is taxable to you, even if some of it went to attorney fees. There used to be a possibility of deducting the attorney fees (although the exact deduction depended on other factors) but that was eliminated in the 2018 tax reform act when the standard deduction was doubled.

 

attorney fees for lawsuits involving unlawful discrimination are still deductible, and that requires a special procedure. Any other attorney fees or expenses that you pay to settle a personal lawsuit cannot be deducted from your winnings.

The form and the payment in Box 10, indicate you received the form for the following reason.

 

Gross proceeds paid to attorneys. - Instructions for who must file Form 1099-MISC

Under section 6045(f), report in box 10 payments that:

• Are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement;
• Total $600 or more; and
• Are not reportable by you in box 1 of Form 1099-NEC. 

Generally, you are not required to report the claimant's attorney's fees. For example, an insurance company pays a claimant's attorney $100,000 to settle a claim. The insurance company reports the payment as gross proceeds of $100,000 in box 10. However, the insurance company does not have a reporting requirement for the claimant's attorney's fees subsequently paid from these funds.

These rules apply whether or not:

• The legal services are provided to the payer;
• The attorney is the exclusive payee (for example, the attorney's and claimant's names are on one check); or
• Other information returns are required for some or all of a payment under another section of the Code, such as section 6041.

If you are not in business as an attorney, and if you received some type of settlement, then it is income to you as miscellaneous income.

 

You can use the following steps to enter your income in this situation where the income is not reported as self-employment:

1. Sign into your TurboTax account > Select Wages and Income > Scroll to Less Common Income
2. Select Miscellaneous Income, 1099-A, 1099-C, Start or Revisit > Other reportable income, Start or Revisit
3. Any other taxable income answer yes > Enter your description and amount
4. See the image below