back wages settlement

[stugen2]

I receive $26,000 back wages from the state of California for when I worked for a temp agency.  No lawyer was involved and no forms, such as a 1099,were included with the payment.  Do I include the payment as income and what form do I use to declare it? Do I need to pay for social security and medicare on it as well?

[ErnieS0]

Back wages are taxable and are reported on a W-2 in the year paid. I assume you received the money in 2020. California or your temp agency should have sent you a W-2 and would withhold Social Security.

Is there a phone number you can call? For example, did the check come with a letter? If not, try contacting the temp agency to see whether they have any information.

The Internal Revenue Service (IRS) and the SSA consider back pay awards to be wages. However, for income tax purposes, the IRS treats all back pay as wages in the year paid.

Employers should use Form W-2, Wage and Tax Statement, or electronic wage reports to report back pay as wages in the year they actually pay the employee.

In the worst case, you can prepare a substitute W-2, but there was probably some federal tax withheld on your behalf and you would not know the amount, meaning your tax return would show a large bill.

Related Resources:

Reporting Back Pay

[stugen2]

The Notice that was sent by the State of California Department of Industrial Relations Division of Labor Standards Enforcement 

"The enclosed check is the amount collected on your behalf. This amount is reportable to the taxing agencies as income. You should consult with your tax advisor. We are not able to provide advice regarding tax matters".

The time working for the temp agency, Blue Ribbon was for 2014-2015.  I have not contacted them but do not believe they will be sending a W2 at this time nor any amount was withheld for social security and medicare.

[ToddL99]

When did you receive the payment - in 2020 or 2021?

[stugen2]

Received October 2020

[ToddL99 · Accepted solution]

Since you only received a check (not a Form 1099-MISC), you can enter the amount as Other Reportable Income. 

This avoids the need to use either the 1099-MISC interview or the Business Income features of higher versions of TurboTax. 
 

Go to the Other Reportable Income  interview, very last interview in Income and Expenses (Federal >  Income and Expenses >  Less Common Income  >  Miscellaneous Income ).  For the Description, enter "Settlement".  
 

(Or enter "other reportable income" in the Search Box and select "jump to other reportable income". These payments are NOT wages).  

This income will appear on Line 8, Form 1040.