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derivative20
Level 1

1099/schedule 1

Physical Injury settlement payment on 1099 box 3, as far as i know it is not taxable. Now, how should i file schedule 1, line 8 as positive and negative to zero it out? any suggestions/comments, would greatly appreciate. 

2 Replies
RobertG
Expert Alumni

1099/schedule 1

The proceeds you receive for emotional distress or mental anguish originating from a personal physical injury or physical sickness are treated the same as proceeds received for personal physical injuries or physical sickness, that is...it is considered to be non-taxable income.

Include the amount from the 1099 on Line 21 of Form 1040 with this description "1099 for Personal Physical Injury Non-Taxable $10,000...but turn and enter a second description that reads "1099 for Personal Physical Injury Non-Taxable -$10,000. Make sure you enter the second amount as a negative number. The effect of this is that the IRS will see that you have included the income properly and removed the income properly.

To enter these amounts in Turbo Tax follow this path:

  1. Click the Personal Tab
  2. Click the Personal Income, then continue on the same screen
  3. Click the I'll Choose What I Work On button
  4. Under the Less Common Income heading, click the Miscellaneous Income, 1099-A 1099-C button
  5. Under the Miscellaneous Income heading, click the Other Reportable Income button
  6. Answer the question if you received any other taxable income as "yes"
  7. from here you will input the information as stated above "1099 for Personal Physical Injury Non-Taxable" including the amount as positive amount
  8. Click the Add Another Miscellaneous Income Item button
  9. repeat #7 except enter the amount as a negative amount
  10. Click Continue, then click Done

 I have included the screenshots from Turbo Tax to help guide you in this process.

See IRS Publication 4345 (click here) for more information regarding the taxability of settlements.

 

This question was answered by 

PeterM

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GeorgeInJungle
Returning Member

1099/schedule 1

Hi, PeterM and RobertG:

 

URGENT! please help:

 

I did follow Peter's instructions to another user who encountered same issue of trying entering negative numbers for a certain type of supposedly non-taxable income (per 'Notice 2014-7' in my case, the income earned as an In-home Care Services Provider for L.A. County in California), however I have been stuck at the very last step of 'REVIEW' stage prior  to 'Filing', and have been juggling/ editing all over the returns for 15 plus hours!!

 

Kept getting this message: 

" Check This Entry 

Wages, Salaries and Tips Worksheet: Line 9 amount for the spouse shouldn't be less than Zero! "

 

And the following copy-and-paste in blue shows how I did the 'double-entry' per Peter and Robert's instructions, i.e. one line-entry with positive income amount, matching another entry with the same description with equal amount in negative.  I have total of 3 In-home Care Services customers (as employers):

 

Much appreciate for your quick response, thank you.

 

Other Miscellaneous Income Summary
 
Here's what we have so far. You can addedit (change) or delete items.
DESCRIPTIONTAXPAYER AMOUNTSPOUSE AMOUNT 
W-2 (Notice 2014-7): Tom_EIN #94-2629822-$-10,739 Edit Delete
W-2 (Notice 2014-7): Jean_EIN #94-2629822-$-7,973 Edit Delete
W-2 (Notice 2014-7): Nancy_EIN#94-2629822-$2,929 Edit Delete
W-2 (Notice 2014-7): Nancy_EIN#94-2629822 -$-2,929 Edit Delete
W-2 (Notice 2014-7): Jean_EIN #94-2629822-$7,973 Edit Delete
W-2 (Notice 2014-7): Tom_EIN #94-2629822-$10,739 Edit Delete
Total Miscellaneous Taxable Income$0$0
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