California wait time penalty taxable (1099 MISC)?

[jj890]

what's the final verdict here? I'm reading different things.. is this taxable or no?

[s4v68759eb]

I am struggling to follow this thread and make the correct decision regarding my 2023 return. I am seeing multiple posts saying this income is not considered taxable by state and/or federal agencies yet both my state and federal return totals are decreasing when I enter this 1099-MISC and say it was "not work related"

[funnybunny4]

Hi! So this is not "professional" advice, but I reported this last year, paid tax on it, and then received the money back from the government (like a massive $5k refund check later on). I chose to err on the side of reporting everything I got but ultimately it is not taxable income. Hope this is helpful!!

[ThomasM125]

I am skeptical about how a waiting penalty payment could have generated a $5,000 refund. It may be that the refund was from something unrelated to the waiting penalty. @funnybunny4 

[s4v68759eb]

Does TurboTax provide a way to mark the 1099-MISC as non-taxable or am I stuck reporting it and potentially receiving an additional refund and having to file an amendment to reflect those changes later?

[funnybunny4]

@ThomasM125 my waiting time penalty was pretty large, ~$15k so I owed a hefty amount as well. It is possible there were other slight adjustments in there as well, but nothing that I would have gotten that grossly wrong on my return!

[MonikaK1]

As explained previously by several users in this thread, the California penalty on employers for not providing a final paycheck timely is not treated as wages, and is not subject to payroll taxes, nor to self-employment tax, but is taxable as miscellaneous income.

To enter this income item in TurboTax:

1. Go to the Income section
2. Scroll down to "Other Common Income"
3. Scroll down to "Income from 1099-MISC"
4. Enter the 1099-MISC
5. Enter "CA Wait time" as Description
6. Select "None of these apply"
7. Select "No, it didn't involve work"
8. Select "...got it in 2023"
9. Select "No, it didn't involve an intent to earn money"

See this Ernst & Young Tax News Update that explains IRS Chief Counsel Letter 2016-0026 regarding this issue.

@s4v68759eb 

[hguyjr24]

It’s taxable dude. It’s subject to income tax, it’s just not paid to you for your efforts as an employee therefore it’s not a wage and exempt from payroll tax. It needs to be entered and taxed on your 1040.