Law suit settlement

Forum|Forum|6 years ago
March 10, 2020
2 replies
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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

MarilynG

Level 15

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.

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iturmanAuthor

Level 2

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?

Opus 17

Level 15

@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?

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.

iturmanAuthor

Level 2

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??