Lawsuit Settlement W-2/1099 Back Wages

[vikingfan6]

As a result of a class action lawsuit settlement, I received both a W-2 (taxed) and 1099-MISC (not taxed) from my former employer.  When I entered the W-2 portion, it adjusted my refund accordingly.  When entering the 1099-MISC, TurboTax asks, "Was any part of the lawsuit settlement for back wages?"  Each answer results in a different tax amount. When I answer yes, it reduces my federal refund by $424.  When I answer no, it reduces my federal refund by $252.  Since the 1099-MISC does not include any back wages, should I answer "no"?  It seems like I am being double taxed if I answer yes, but that is technically the correct answer to the question.

[DavidD66]

If the amount reported on Form 1099-MISC wasn't for wages, what was the payment for? 

[vikingfan6]

It is the penalty portion of the settlement.

[vikingfan6]

It is listed as "Non-Wages".

[JamesG1 · Accepted solution]

You should answer 'No'.  Legal settlements are reported as other taxable income.  See this IRS publication.

[EMASS]

Hi,

I received a W2 from my past employer AND a 1099 MISC from them due to a DOL settlement. The W2 does NOT include the labor settlement and fines that I was owed due to back pay. What is the best way to declare this money on my taxes? Since it includes back wages plus the fines my previous employer owed me due their delinquency do I state that it is all back wages?

Thanks!

[DawnC]

Enter both the W-2 (back wages portion) and then enter the 1099-MISC for the fines and penalty (non-wages) separately.   @EMASS

Here is a discussion regarding a similar situation.