I received a settlement as a member of a class. With the check, I received a letter stating the settlement funds were considered to be recovered retirement benefits. The letter also stated the law firm had decided to issue a 1099-misc instead of 1099 R as it would save them and us time and money. How do I show this as retirement funds instead of wages since the 1099-misc section doesn't give me that option and I'm sure I'm being taxed higher as a result. What really stinks is the fact that the lawsuit was against the feds. 🙂
if you had no tax basis, for federal purposes a 1099-R vs a 1099-MISC won't matter they get taxed the same.
1099-misc box 3 other income. for some states it may well matter because they don't tax retirement benefits or give them preferential treatment.
Thanks Mike, I was hoping that if it were classified as retirement income it might be different. It just burns a little since this was retirement income from the Federal Government. 🙂
Also, by tax basis, is that something on the form or an IRS rule?
You would have to know the basis. This would make some of the income nontaxable with a 1099-R. If you do not know the basis, the reporting of the income is irrelevant.
Your cost basis in retirement income (pension, IRA, 401K, etc,) is the sum of the nondeductible contributions to your "retirement plan/account" minus any withdrawals or distributions of nondeductible contributions.
Hello again,
Yours is the second response that mentioned "tax basis" could you please explain that?
As Expert ColeenD3 explained above, your basis in the retirement funds you received is the total of all your after-tax contributions less any withdrawals you made from those contributions. If you never contributed from your own pocket, your basis is zero.