Settlement sent W2, 1099Misc and 1099R

[bjmt]

Hi, 

I had a settlement in 2023. I was issued 2 separate checks from my employer and told that one check is taxable. For simplicity, lets say one check was $100 and second check was $200

Recently, my employer sent me W2 and 1099 Misc that has the same amount ($200) and a 1099 R for an amount more than the total I received ($300), lets say $400. I don't recognize why gross distribution on 1099R shows an amount more than what I received. Taxable amount shows zero.

Any idea why the 1099R amount would be different from what I actually received? From a  tax return standpoint, I input the W2. If I input the 1099Misc ,  would that not inflate/double count my income ? If I further add the 1099R to my return,  would it not triple count the taxable income?

I am really confused. Can you please advise on how these 3 tax forms  and 2 different amounts need to be reflected?

[ThomasM125 · Accepted solution]

You said you got two checks from your employer so that would explain why you got two of the reporting forms. The Form 1099-R is for a pension distribution so that may be unrelated to the other two checks. If it has $0 in box two though, it won't show as taxable on your tax return, so can enter that in the pension income section.

The W-2 sounds right as you said one of the checks was taxable. If the amount on the Form 1099-MISC is not taxable, the company can still feel compelled to report it, as it is not up to them to determine it's taxability. If you know it is not taxable, you can enter it in the 1099-MISC section in TurboTax, then enter a negative adjustment to income to cancel it out. Here is how you can do that:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description for the reduction of income and the adjustment amount as a negative number

[bjmt]

Thanks just to clarify you are saying I need to enter W2, 1099 Misc and 1099R amounts under wages and income  with 1099Misc entered as a negative amount and the other 2 .(W2 and 1099R) as positive amounts?

[DaveF1006 · Accepted solution]

You would report the 1099 MISC, W2, and 1099R as normal income. What @ThomasM125 is saying is that after you report those three things as income, then you will make an additional entry to cancel out the 1099 MISC income by:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description for the reduction of income and the adjustment amount as a negative number

So you would first enter the 1099 MISC, W2, and 1099R as normal income in the wages and section section of the return all as positive numbers, and then use the procedure listed above to negate the 1099 MISC income that was already reported. 

[bjmt]

Thank you for the clarification. I have followed your instructions and input all 3 forms in its appropriate section in income and made a 4th negative adjustment entry for the 1099MISC as well.

On the 'Other Taxable Income' screen, the note that states "Do not enter income reported on Form 1099-MISC" kind of throws me off because, though a negative entry, I am technically entering income reported on Form 1099-MISC. Hope that is ok.

[DaveF1006]

Ignore this message because all you are doing is negating the income already reported on a 1099 MISC.

[Opus 17]

There;s no way to know what is going on without a lot more specific facts.  You may want to take everything to a tax professional.

In general, anything your employer pays you as a result of your service for them should be considered taxable wages and reported on a W-2.  "Settlements" are taxed according to what they represent.  For example, I know of a small pizza chain that was forced by the state to pay back wages to their drivers, and pay them for the use of their personal cars.  The part of the settlement for back wages were reported on a W-2 because they were in place of wages, and the payment for use of the personal car was taxable, but on a 1099-MISC, because it was not subject to social security and medicare tax, and because the employees might have taken mileage deductions (this was before 2018).  A settlement would not be completely tax-free unless it was for a personal injury.

Then, I don't know why any settlement would be reported on a 1099-R, that's retirement income.

Let me try a guess, though.  Suppose you were underpaid and due back wages.  Suppose the under-payment of wages also resulted in under-payment of contributions to a 401k.  So the employer needs to put some extra money into your 401k.  But suppose you quit and closed out or rolled over the 401k to another account.  In that case. the employer pays you directly, and since it is for retirement, it is on a 1099-R.  (In that case, you would have 60 days to roll it over to an IRA to avoid tax.)

Out of curiosity, what is the code in box 7 of the 1099-R?

While you can add the 1099 to your return and then zero out the income with a correction, it would be better to get the employer to cancel the duplicate forms in the first place, if they are duplicate.  But it's really unclear what is going on here.  What is the basis of the payments and settlement ?

[bjmt]

Thank you @DaveF1006 and @ThomasM125 .