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Level 2
February 21, 2025
Question

1099-MISC

  • February 21, 2025
  • 2 replies
  • 5 views

I received a net settlement check of $463 from the Bumble class action lawsuit. The gross recovery was $777 for me, but they deducted $314 to pay attorney’s fees. The 1099-Misc form I received shows the $777 in Box 3. Other Income. Why do I have to pay taxes on the full $777 when I only received a check for $463?

2 replies

rjs
Level 15
Level 15
February 21, 2025

That's the law. Basically you received a settlement of $777, then you used $314 of your settlement to pay the attorneys. It's the same as if you had received a check for $777, then wrote a check for $314 to pay the attorneys. The full amount that you received, before paying the attorneys, is taxable income. The attorneys' fees are not tax deductible.

 

Level 15
February 21, 2025

Attorney fees are only deducted for certain types of settlements. 

 

For more information: IRS Tax implications of settlements and judgments

 

Assuming I understand correctly, the Bumble class action was a securities lawsuit.

 

Because the entire settlement — including attorneys' fees — will generally be income to the claimant, the full amount must be reported as paid to the claimant.

 

Enter a 1099-MISC for lawsuit settlement:

  1. Open or continue your return.
  2. Navigate to the 1099-MISC section:
    • TurboTax Online/Mobile: Go to 1099-MISC.
    • TurboTax Desktop: Search for 1099-misc and select the Jump to link.
  3. If you're asked Did you get a 1099-MISC?, answer Yes.
    • If you've already entered a 1099-MISC, select Add another 1099-MISC.
  4. Enter the information from your 1099-MISC and select Continue.
  5. On the Describe the reason for this 1099-MISC screen, enter lawsuit settlement and select Continue.
  6. On the Does one of these uncommon situations apply? screen, select This was money from a lawsuit settlement and then answer the back wages question before selecting Continue.

TurboTax FAQ: Where do I enter an award from a taxable legal settlement?

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daleritAuthor
Level 2
February 21, 2025

Thanks. Pretty crappy I’ll end up paying $345 in taxes and my check was for $463.