Law suit settlement

[iturman]

I received a W-2 for a lawsuit settlement.   I entered the information from the W-2 into Turbo Tax in the Wages Section.

Turbo Tax does not treat the money as earned income, but as earnings from Self-employment and generates a Schedule SE.  Please explain

[MarilynG1]

You probably also received a 1099-Misc with an amount in Box 7; this is what is generating the Self-Employment income, not the W-2.

In the follow-up questions after entering your 1099-Misc, choose 'this work is not like my main job' and then 'no intent to earn money' (screenshots).

This will put the income under 'Other Income' instead of Self-Employment Income.

Click this link for more info on Legal Settlements.

[iturman]

Thank you for reply, but i don't think that's the answer.   The lawsuit settlement organization sent a W-2 and a 1099 Misc.  the 1099 Misc income was entered and appears as Misc Income..  The W-2 statement had all the proper taxes shown, Fed withholding, St withholding, Social Security and Medicare Withholding. The Fed and State withholding amounts are applied correctly.  Its strictly the Earnings on the W-2 that appears as Self-employment income, why?

[DaveF1006]

 Was the 1099 and W2 issued for the same income? Does Box 1 of the W2 match Box 7 of the 1099 MISC?

[Opus 17]

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@iturman wrote:

Thank you for reply, but i don't think that's the answer.   The lawsuit settlement organization sent a W-2 and a 1099 Misc.  the 1099 Misc income was entered and appears as Misc Income..  The W-2 statement had all the proper taxes shown, Fed withholding, St withholding, Social Security and Medicare Withholding. The Fed and State withholding amounts are applied correctly.  Its strictly the Earnings on the W-2 that appears as Self-employment income, why?

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Settlement income is taxed according to how the money it replaces would have been taxed.  You'll need to tell us more specifically about what the claims in the lawsuit were and why the settlement was split between a W-2 and a 1099.  

[iturman]

Thanks for your response.

the Law Suit settlement was for back unpaid wages and was part of a class action lawsuit.

the documents received were a W-2 and a 1099-Misc.  The W-2 shows  Gross Wages and all the applicable  taxes that were withheld.  The 1099-MISC  amount is shown in Box 3.  the Gross Wages and the Misc Income are 2 completely different amounts. 

Turbo Tax is classifying the Wages amount as Income from Self Employment and generating  form Schedule SE with the Gross Wages Amount from the W-2 shown  on Line 2 "Net Profit from Schedule C and Schedule K-1", neither of which have been generated.  The system then generates a Self Employment Tax Amount that is shown on Line 16  of the 1040. 

How can it be both W-2 back Wages Income  and Net Profit from Self employment??

[Opus 17]

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@iturman wrote:

Thanks for your response.

the Law Suit settlement was for back unpaid wages and was part of a class action lawsuit.

the documents received were a W-2 and a 1099-Misc.  The W-2 shows  Gross Wages and all the applicable  taxes that were withheld.  The 1099-MISC  amount is shown in Box 3.  the Gross Wages and the Misc Income are 2 completely different amounts. 

Turbo Tax is classifying the Wages amount as Income from Self Employment and generating  form Schedule SE with the Gross Wages Amount from the W-2 shown  on Line 2 "Net Profit from Schedule C and Schedule K-1", neither of which have been generated.  The system then generates a Self Employment Tax Amount that is shown on Line 16  of the 1040. 

How can it be both W-2 back Wages Income  and Net Profit from Self employment??

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I don't understand your answer.  Enter the W-2 on the W-2 page, it should already have taxes taken out (at least box 4 and 6, maybe not box 1, but that's ok).  The wages from box 1 of the W-2 should never show up on schedule SE.  

For your 1099-MISC with income in box 3, what does this money represent?  You may need to contact the attorneys in the settlement.  Is it wages?  Is it some other kind of compensation?  Is it a duplicate of the W-2 that should not have been issued?

Assuming the 1099-MISC is for part of the settlement that is taxable but not wages, you would enter the 1099-MISC as is, but answer all the testing questions "no" (not intended to earn a profit, not similar to my regular job, etc.)

[Opus 17]

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@iturman wrote:

 Its strictly the Earnings on the W-2 that appears as Self-employment income, why?

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There is no physical way in Turbotax for W-2 box 1 wages to be added to schedule SE unless, after entering the W-2, you checked the box for "religious employment" on the page for special circumstances.  This special circumstance only applies to pastors (ministers, priests, other persons who lead congregations and are authorized to perform and actually perform the sacraments as part of their duties.)  "Religious employment" does not apply to persons working in secular positions for a religious organization. 

[Critter]

Delete the 1099-misc you have entered already and delete the incorrect Sch  C.... then follow these instructions to the letter ...

Follow these directions to post 1099-Misc, box 3 income not subject to self-employment taxes.

• Down the left side of the screen, click Federal.
• In the center of the screen, click Income & expenses.
• On the screen Your income and expenses, scroll all the way down to the last section, Less Common Income.
• Click the Start or Update button for the last topic, Miscellaneous Income, 1099-A, 1099-C.
• On the next screen, Let's Work on Any Miscellaneous Income, scroll down and click the Start or Update button for the last topic, Other reportable income.
• The next screen asks, Did you receive any other taxable income. Click Yes.
• On the next screen, Other Taxable Income, enter a description and the amount. Click Continue.
• On the next screen click Done.

The income will be reported on Schedule 1 line 8 with the description that you entered.