How to enter 1099-MISC Box 3 proceeds for emotional distress originating from a personal physical injury. Settlement from former employer obtained without court/lawsuit.

[CathiM]

The IRS does not have a place on your tax return to mark your 1099-MISC as non-taxable.  This Line 21 workaround does work on tax returns.  If line 21 is showing $0, and you see the description of the 2 items, one positive and one negative, then the amount must be coming from somewhere else as well.  If you choose to leave the 1099-MISC off your return, just keep your records.  I would try calling your attorney that you used for the settlement and tell him the employer is reporting it as taxable.  It is easy for the employer to file a corrected 1099-MISC and eliminate the problem.

[Tax_Customer]

Then what is the correct way that the employer should have reported the emotional distress payment, so that I may inform my attorney accordingly.

[CathiM]

If it is not taxable they should not have issued a 1099-MISC but can now issue a corrected 1099-MISC showing $0 in Box 3.   Your attorney will probably be aware of these issues. You don't report non taxable items on a 1099-MISC.

[petegio]

The instructions for entering a negative amount to offset medical expenses is incorrect.  Turbotax ignores negative 1099-MISC, so this method does not help at all.

[anita1515]

forgot to put last year the 1099 of emotional distress and phisical harm. What can I do?

[RobertB4444]

@anita1515  If the amount received is taxable then you can amend your federal return for 2020.  If you prepared it using TurboTax then you just log in to your account, select the 2020 return and click amend.  

If the amount is non-taxable then leaving it off the return was the right thing to do.  You should prepare the evidence that makes the settlement non-taxable and keep it on hand in case the IRS asks about it.  But otherwise do nothing.