1099 NEC

[rand5204]

I won a discrimination lawsuit against a former employer in 2020. A portion of their payment to me was reported on my W2. Another portion was reported on a 1099 NEC. When I entered the 1099 NEC in Deluxe, it asked me if the entry was for payment of a lawsuit for back wages. I entered yes but the system then prompted me to complete a Schedule C with all kinds of business information. I don't own a business. I read on the back of the NEC form that if I felt the sum should have been included as W2 income that I should enter it there. Not sure what I should do. I certainly don't want this to become an issue with the IRS.

[ColeenD3]

This is the manner in which back wages is reported. It is partly on a Form W-2 and partly on a 1099-NEC (1099-MISC prior to 2020). You will need to include the income on Schedule C.

1. Open or continue your return.
2. Search for schedule c and click the Jump to link in the search results.
3. Answer Yes to Did you have any self-employment income or expenses?
   • If you've already entered self-employment work and need to enter more, select Add another line of work.
4. Follow the onscreen instructions.

[rand5204]

Thank you for your response to my 1099 NEC question. However, it makes ,me pretty uncomfortable to create a Schedule C business that doesn't exist just to account for this income. The back of the NEC form states that I can add the wages to my W income if I feel that I was an employee - which I do. Is Schedule C still the best course of action.

Thanks for your help.

[MaryM428]

Delete the 1099-NEC that is asking you to create a business

Federal 

Wages and Income

Income from 1099-NEC

Find the 1099-NEC and delete it by clicking the wastebasket and confirming the delete


You can use these steps to report your settlement from a lawsuit

• Federal
• Income from 1099-NEC
• Fill in info from the 1099-NEC
• Describe the reason for the 1099-NEC as Lawsuit Settlement
• Does one of these uncommon situations apply? check This was money from a lawsuit settlement
• Answer Yes Was any part of the lawsuit settlement for back wages?
• Enter the amount that was for back wages

The steps above will report the lawsuit 1099-NEC without adding any taxes.

If this money was for wages that should have been reported on a W-2 and you did not receive a W-2, then contact the company and request a W-2 for the amount of back wages and enter that W-2 into TuirboTax.

If you are not able to obtain a W-2, then you can enter the income as a substitute W-2, but you should only do that if all attempts to obtain a W-2 are unsuccessful.

To create substitute W-2

Federal

Wages and income

Wages and Salaries (W2)

Enter amount and then I type it in myself

Fill in information and continue to the screen Let's check for uncommon situations

Check Didn't get a W-2 (manually calculate my earnings)

Answer Yes to Let's check if you need a substitute W-2

By selecting Yes, you acknowledge the following statement:
 

I have been unable to obtain (or have received an incorrect) Form W-2, Wage and Tax Statement, from my employer. I have notified the Internal Revenue Service of this fact. The amounts shown on this statement are my best estimates of all wages or payments paid to me and federal taxes withheld by this employer during 2020. 
 
OK, we'll start with a description of your efforts to get a W-2 - fill in the effort that you made to obtain the W-2

Describe how you determined your wages and the tax withholding without a W-2

Print a copy of the substitute W-2 to keep with your records

@rand5204

[AHelper]

The other alternative to get the proper result is to remove the income from box 1 when you enter the 1099-NEC.

Then say yes it was from a lawsuit.

Then enter the amount from box 1 in the amount of wages.

This will clear the errors.

[DianeW777]

Not exactly.  As noted by @ColeenD3, any part of the 1099-NEC that is for back wages and allowed to be issued in that manner must be included ad income on Schedule C.

Social security and medicare taxes are required to be paid on compensation, i.e., this income. based on the document received (Form 1099-NEC). This is assumed due to the way it was reported.  If this was not back wages, then another approach can be used as noted by our Tax Expert @MaryM428.

You can use these steps to report your settlement from a lawsuit-The steps above will report the lawsuit 1099-NEC without adding any taxes.

1. Federal
2. Income from 1099-NEC
3. Fill in info from the 1099-NEC
4. Describe the reason for the 1099-NEC as Lawsuit Settlement
5. Does one of these uncommon situations apply? check This was money from a lawsuit settlement
6. Answer Yes Was any part of the lawsuit settlement for back wages?
7. Enter the amount that was for back wages

[jesthomp3]

Hi! 

After following these instructions to enter a 1099-NEC for a wage claim settlement, I received a Fix Error message to check the Other Income box or uncheck the Back Wages from Lawsuit box and to remove the amount in the Box 1.  It also says a link to Schedule C, Schedule F, Form 8919, or Other Income Statement must be entered. What's the best way to resolve this error?

[ColeenD3]

Delete all entries regarding this and enter them again.

Follow these steps to go to the Schedule C section of your return:

On the top right corner of TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner).

1. Type in “schedule c” (or for CD/downloaded TurboTax, click Find).
2. Click on “Jump to schedule c”.
3. Click on the blue “Jump to schedule c” link