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Hello Experts,
I am preparing taxes for a family member. He lost his job in 2021 and filed a claim with his employer for wrongful termination. They were able to resolve all disputes without litigation after mediation in 2022. Employer finally paid $100,000 (the “Settlement Amount”). Lawyer had contingency fee as 40% of Settlement Amount
As per agreement, Employer paid amount in 3 checks.
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As per agreement, Employer paid amount in 3 checks.
Hello Experts,
any help on this question will be highly appreciated. 🙏
You do not need to report it, but my opinion is that you should claim the $40,000 as an itemed deduction. This is a gray area however I cannot imagine an IRS agent denying that deduction. Others may have different response.
But if you are going to report it as a deduction, then you need to report it as income. This was income even though it went to the attorney. This would be worth consulting a tax attorney to explore your options and best course of action.
Your attorney will be responsible to pay the tax on the $40,000 that they received.
As per agreement, Employer paid amount in 3 checks.
hi @Critter-3 . Thank you very much for your response.
Yes, no 1099 was issued to Employee for Check -3.
so I assume based on your reply, we don’t need to do anything in our Tax return for Check-3?
Correct ... it was paid to the attorney directly and it goes on the attorney's return.
Hi @Critter-3 , I need another help.
When I enter details for Check -3 in 1099-MISC. It asks for question "Does one of these uncommon situations apply?"
Should I select "this money was from lawsuit settlement"? My family member didn't filed a lawsuit in the court. It was just a claim to employer.
If, I mark this transaction from lawsuit settlement, its give me another question "Was any part of the lawsuit settlement for back wages"? DO I need to mark this Yes or No?
If I "mark No", then during Smart Check its asking me to still fill in amount details for lawsuite settlement for back wages.
If I mark "Yes", and add Check 1 amount then it adds more taxes.
We think Check 1which is reported in W-2 is already getting taxed.
I am bit confused why during smart check it forces me to enter amount details for Check 1.
Since you are entering the W-2 for the back wages you will NOT enter that info again in the 1099-misc section.
As for the 1099 entry ... I don't see where you are having issues ... delete the 1099 and try again ...
Thanks @Critter-3 , Your suggestion worked. Deleted the form and added again. "Smart Check" works fine now.
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