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New Member
posted May 31, 2019 7:45:24 PM

Out of court settlement for emotional and physical injury

I got 10,000 for it and fill them out a w9, i never itemized deductions for medical expenses related to the injury in pryor years, if i get a 1099 from them how i report that if thats the case, Thanks

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1 Best answer
New Member
May 31, 2019 7:45:26 PM

The proceeds you receive for emotional distress or mental anguish originating from a personal physical injury or physical sickness are treated the same as proceeds received for personal physical injuries or physical sickness, that is...it is considered to be non-taxable income.

Include the amount from the 1099 on Line 21 of Form 1040 with this description "1099 for Personal Physical Injury Non-Taxable $10,000...but turn and enter a second description that reads "1099 for Personal Physical Injury Non-Taxable -$10,000. Make sure you enter the second amount as a negative number. The effect of this is that the IRS will see that you have included the income properly and removed the income properly.

To enter these amounts in Turbo Tax follow this path:
  1. Click the Personal Tab
  2. Click the Personal Income, then continue on the same screen
  3. Click the I'll Choose What I Work On button
  4. Under the Less Common Income heading, click the Miscellaneous Income, 1099-A 1099-C button
  5. Under the Miscellaneous Income heading, click the Other Reportable Income button
  6. Answer the question if you received any other taxable income as "yes"
  7. from here you will input the information as stated above "1099 for Personal Physical Injury Non-Taxable" including the amount as positive amount
  8. Click the Add Another Miscellaneous Income Item button
  9. repeat #7 except enter the amount as a negative amount
  10. Click Continue, then click Done
 I have included the screenshots from Turbo Tax to help guide you in this process.

See IRS Publication 4345 (click here) for more information regarding the taxability of settlements.



Edited January 25, 2017 for additional instructions.

3 Replies
New Member
May 31, 2019 7:45:26 PM

The proceeds you receive for emotional distress or mental anguish originating from a personal physical injury or physical sickness are treated the same as proceeds received for personal physical injuries or physical sickness, that is...it is considered to be non-taxable income.

Include the amount from the 1099 on Line 21 of Form 1040 with this description "1099 for Personal Physical Injury Non-Taxable $10,000...but turn and enter a second description that reads "1099 for Personal Physical Injury Non-Taxable -$10,000. Make sure you enter the second amount as a negative number. The effect of this is that the IRS will see that you have included the income properly and removed the income properly.

To enter these amounts in Turbo Tax follow this path:
  1. Click the Personal Tab
  2. Click the Personal Income, then continue on the same screen
  3. Click the I'll Choose What I Work On button
  4. Under the Less Common Income heading, click the Miscellaneous Income, 1099-A 1099-C button
  5. Under the Miscellaneous Income heading, click the Other Reportable Income button
  6. Answer the question if you received any other taxable income as "yes"
  7. from here you will input the information as stated above "1099 for Personal Physical Injury Non-Taxable" including the amount as positive amount
  8. Click the Add Another Miscellaneous Income Item button
  9. repeat #7 except enter the amount as a negative amount
  10. Click Continue, then click Done
 I have included the screenshots from Turbo Tax to help guide you in this process.

See IRS Publication 4345 (click here) for more information regarding the taxability of settlements.



Edited January 25, 2017 for additional instructions.

Level 2
May 18, 2020 3:48:18 PM

Hi PeterM, thank you for promptly/clearly answering my question. I follow your instruction and here are some results. Form 1040 line 7a is Zero, schedule 1 line 8 is zero but line 8 on schedule 1 left with explanation’  positive 1099 for personal injury non-taxable ‘ negative 1099 for personal injury non-taxable ! Is this the right outcome?? Thank you!

Employee Tax Expert
May 19, 2020 10:13:47 AM

Yes. As long as the deduction is related to medical expenses incurred, the payment is not taxable. If the deduction is not related to medical expenses, any proceeds received for emotional distress of mental anguish must be included in income.

 

If the proceeds you receive for emotional distress or mental anguish do not originate from a personal physical injury or physical sickness, you must include them in your income. However, the amount you must include is reduced by: (1) amounts paid for medical expenses attributable to emotional distress or mental anguish not previously deducted and (2) previously deducted medical expenses for such distress and anguish that did not provide a tax benefit. Attach to your return a statement showing the entire settlement amount less related medical costs not previously deducted and medical costs deducted for which there was no tax benefit. The net taxable amount should be reported as “Other Income” on line 8 of Form 1040, Schedule 1.