Class Action Lawsuit for back wages

[Rickd83]

I was in a class action lawsuit for back wages. I received a W-2 with the back wages and tax withheld as well as social security and medicare withholding. I also received a 1099-MISC, which is for interest for the back wages (this is not noted on the 1099-MISC, but we were advised this is what it is for). So, do I list the 1099-MISC as a lawsuit settlement, then put the amount of the back wages from the W-2, or do I indicate "No", not from a lawsuit?

[DawnC]

Indicate that this is a lawsuit when entering the 1099-MISC.   When you click the radio button  •This money was from a lawsuit settlement, a drop-down will ask if any of this income is for back wages.  Since you are going to enter the W-2 for the wage portion, answer NO, this is not for back wages.   This will put the amount of the 1099-MISC on Line 8 of Form 1040 and it will be taxed as ordinary income.  

[Rickd83]

When I looked at my Form 1040, the amount is actually placed on Line 1h, and not Line 8.

[DaveF1006]

To clarify, does the interest amount reported in 1099 MISC appear on Line 1h or just the amount from the W2? 

[Rickd83]

The amount on Line 1h is the amount listed from the 10990-MISC (Box 3), not from the W-2.

[DaveF1006 · Accepted solution]

Then it's reported incorrectly.  Let me lead you through some steps but before you perform these, you may wish to delete all your previous entries reporting your 1099 MISC. Before you do this, read my instructions to see if you reported it like I suggest.

1. Go to federal>wages and income>other common income>income from 1099-MISC
2. Enter the 1099-MISC
3. Next screen will ask you for a description of the income
4. Next screen asks if any of this uncommon income applies.  Say this is from a lawsuit settlement. if it asks if it was for back wages, say no. 
5.  If this is done correctly, this should appear in Line 1Z from Schedule 1 and then transfer to line 8 on your 1040. 
6. Now if you said yes that this was for back wages, then the amount will appear on Line 1h on your 1040. This isn't for back wages but it's the interest for the back wages.  Interest is not earned income but back wages without interest is earned income. Therein lies the difference.

Before you delete your entries as I have suggested, you might want to make that simple change to change the entry in step 4 from a yes to a no. In most instances this may work but sometimes these entries stick to the original choice even if you try to make the change.  If this is the case, you may need to delete all your previous entries and enter the 1099 MISC again.

Let me know if this works.

@Rickd83 

[Rickd83]

Thanks for the suggestion. Yes, the program was remembering my original choice, so I had to delete the 1099-MISC and reenter it again. After doing that, it showed up on Line 8 of the 1040, and the information on Line 1h changed to 0. Thanks so much for the assistance. After this correction, I am now getting a refund instead of owing a few dollars.

Rick