I received a settlement for a LTD ERISA case using an attorney who was paid a contingency fee from the award. Two separate checks were issued, one to me, and one to my attorney (covering his contingency fee). I received a W2 for my portion, but did not receive a 1099 documenting the portion my attorney received. My understanding is I am required to report the entire amount of the settlement as gross income, including the portion my attorney received, but I can use the "above the line" option to deduct my attorney's portion from taxable income. I thought they were required by law to provide a 1099 to both me and my attorney for tax purposes, how do I complete my taxes if they don't provide a 1099 to me?
Payments to employees stemming from employment-related claims that are wage-based are reported on a W-2. If the settlement agreement does not clearly allocate an amount for attorney's fees, then the entire amount is subject to FICA taxes and reported on the W2. If the agreement does allocate the attorneys fees, you will receive a 1099-MISC for that amount in addition to the W2.
Thank you for responding. The settlement agreement clearly allocates the amount due to me, and the amount due to my attorney, and that separate checks for the respective amounts would be issued, one in my name and the other in his name. For my check, they withheld about 38% of the gross amount owed to me for state and local taxes; it is LTD pay not subject to FICA.
I received the W2 for my portion 12 days ago, but they did not send me a 1099-misc reflecting my attorney's portion of the settlement. My understanding is that they are required to do so but since they haven't, I have no way of knowing if, or how, they are reporting the attorney's portion to the IRS, or if they are reporting the correct amount. This is a third party benefits administrator used by my former employer, one of the worst and most unethical. I know I need to include my attorney's portion as gross income even though his check went directly to him, how can I do that without receiving the 1099?
The portion of the settlement that represents lost wages will come on the W-2. Given the type of suit that is probably all you will get from them. If you have access to the amount on the attorneys 1099 you should not need one issued to you to file.
One option you might try, if you have not already done so, is to contact the entity that issued your payment and request that they also send you a 1099-Misc for the attorney contingency fee. However, if you cannot receive a 1099-Misc, then use the settlement agreement to support your entries on your tax return.
@silly minion
Thank you, I just received a copy of my 1099-Misc and it looks correct, the amount paid to my attorney is shown in line 3. It was issued by some other division of my former employer, not the 3rd party benefits administrator that provided my W2 two weeks ago.
I need to include this amount in Part 1 of Schedule 1, it seems the best option is adding it as "other income" in line 8z and which requires "list type" description. What is the best description to enter? Settlement, or UDC, other?