1099-MISC from insurance company for an injury lawsuit settlement

[DLS59]

I received a settlement from an insurance company for injury from a car accident. They sent me a 1099-MISC, with the amount of the settlement in box 10, "Gross proceeds paid to an attorney." The payment was made to me, and my research suggests money awarded in a lawsuit settlement should be shown in Box 3, "Other Income." Because it was shown in Box 10, TurboTax is trying to populate a Schedule C, but I am not self-employed or a business. Can you help me understand why this may not have been not reported in Box 3? Also, everything I have been able to read says lawsuit awards due to injury are not taxable. Can you confirm this?

[ThomasM125]

It may have been reported as payments to an attorney since that may be how the insurance company normally pays the settlements. It seems to have been reported in error.

If you are being compensated for personal physical injury, then the award is not taxable. If the award is for mental duress or punitive damages and not for personal injury, then it is most likely taxable. You can learn more here: Taxability of Lawsuit Judgements

[DLS59]

I thought it was an error. Should I just fill out TurboTax and put the amount in Box 3? Or should I request a new 1099-MISC from the insurance company?

[Opus 17]

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@DLS59 wrote:

I thought it was an error. Should I just fill out TurboTax and put the amount in Box 3? Or should I request a new 1099-MISC from the insurance company?

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It will be better to get a corrected 1099 if they will issue one.

Also note, the proceeds may be non-taxable, partly taxable or fully taxable, depending on what you are being compensated for.  The part of the settlement for physical injury is not taxable.  Any part of the settlement for property damage is non-taxable unless the payment is more than your original cost for the damaged items, in which case the excess is taxable.  Damages for lost income, punitive damages, and interest, are taxable.

If you enter the 1099-MISC as taxable income, but it is not fully taxable, you will have to make an adjustment in the program.  One of the turbotax employees can explain that procedure better than I can.  The adjustment could be made from the current 1099, but it would be better to have a corrected 1099 to work with.