Received a 1099-Misc for a Settlement for back wages

[rjeanpaul03]

I am self-employed now but used to work for an employer 5 years ago. There was a class action lawsuit of for back wages and and I received a settlement. I got a 1099-misc and a W-2 from the lawyer's office. I have amounts in Box 3 "Other Income" and Box 10 "Gross proceeds paid to an attorney".

TurboxTax says that there is a problem with my taxes and is asking for a "Link to Schedule C" for Box 10.  I have no idea what they are asking for and when I finally got to talk to someone at TurboTax after about a 2 hour wait, the guy's phone dropped the call.

This shouldn't be considered business income since it wasn't from my business so why is it asking me to link to a Schedule C. Also, how do I link to a Schedule C?

I really don't know what to do here and I hope someone can give me an answer.

[DavidD66]

You are correct, it is not self-employment income.  It should not be linked to a Schedule C.  Since the settlement was for back wages, it should have been reported on a Form W-2.  To report in TurboTax Online, while logged in to your return:

• Type "Other Income" in Search
• Click on "Jump to other income"
• Answer "Yes" to "Did you get a 1099-MISC?"
• Enter the information on your 1099-MISC
• Enter the total amount in Box 10 as "Taxable Attorney's Fees" (Attorney's fees received in a settlement in an employment dispute are taxable to the plaintiff, even if the fees are paid directly to the attorney.)
• Enter "Back Wages" or similar to Describe the reason for the 1099-MISC
• On the screen with "Does one of these uncommon situations apply?"  Mark the button for "This was money from a lawsuit settlement"
• Answer Yes to "Was any part of the lawsuit settlement for back wages?"
• Enter the amount you received that was for back wages
• Click on "Continue"
• Leave the blank empty on the page "Self-Employed" Income, and click on "Continue"

[Opus 17]

I don’t believe the above answer is correct. The customer states that they received a W-2 and a 1099.  The W-2 is for the portion of the settlement that represents wages.  The 1099-MISC represents other monies that were paid as part of the settlement that were not wages.  For example, this might represent punitive damages, interest on the money due over several years, and in this case, the employer paid the attorney‘s fee directly to the attorney.  Unfortunately, the total settlement is taxable to the taxpayer, even including money that was paid directly to the attorney that the former employee never receives. There used to be a deduction for this type of attorney fee but it was eliminated in the 2018 tax reform law.

turboTax expert  @WendyN2    appears to have the correct solution to how to enter this type of 1099.

https://ttlc.intuit.com/community/business-taxes/discussion/1099-misc-box-10/00/1863112

[rjeanpaul03]

Thank you very much. Yes, this was the answer to my question but the solution @WendyN2  did not work for some reason.  I followed the steps, but when finalizing my return, it is TT is still asking for a Schedule C but this time in Box 3.

When I try to do it again, and go through the process TT requires me to list "lawsuit settlement" as a reason for the income and then it adds it to my self-employment income. It's treating my lawsuit settlement as a business and is requiring me to answer questions like how long have I been in business. I really don't know what to do.

[Opus 17]

TurboTax made some changes to the 1099 interview as a result of the introduction of the new 1099 – NEC form, and I don’t particularly like the changes and I have not studied them to see how they work.

if you don’t otherwise have a schedule C business, then I would try deleting the 1099 – MISC and enter it again.  As part of that interview, you may get testing questions asking if this is similar to your regular business, if it was done for a profit motive, if you will be doing similar work in the past or the future. Those testing questions are designed by the IRS to determine if you need a schedule C for business. Since you know that you do not use a schedule C for this income, you can answer all the questions as “no”.  Technically, the part of the settlement that is not wages is not like your regular job and so you should answer no to clear those questions.  

Maybe someone else can help you with the new interview.  @macuser_22  @DoninGA 

[monicaagarcia711]

Had the same issue. They took my paymentvthen wouldn't allow me to move forward without explanation or refund??

[Irene2805]

The reason a Schedule C was created was because of the entry in Box 10 - Gross Attorney's fees. 

According to the instructions for 1099-MISC, report in box 10 fees "made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement"

A few screens after the 1099-MISC entry screen you will see Enter Taxable Attorney Fees.  Enter zero in the box and click Continue.  [See Screenshot below.]

@monicaagarcia711

[36cimona55]

I'm just stuck on what actual amount to enter for back wages since it is not indicated as such on my 1099 MISC form? Is it the same amount for "other income" in box 3? I'm just not sure.

[Opus 17]

@36cimona55 

if you received a settlement for back wages, your employer should have put it on a W-2. We don’t know how much your settlement was for, only you know that. What are the details of the settlement?  (For example, I know a pizza place that settled with its employees and the state over back wages and unpaid mileage expenses. One third of the settlement amount was back wages and 2/3 of the settlement amount was mileage reimbursement, which are taxed differently.)

Even though you received 1099, a settlement for back wage should be reported on a substitute W-2 form. We can help you with this, but can you tell us more of the details of your settlement?

[36cimona55]

Thank you. I received a 2 checks from a class action settlement totaling $900. The 1099 MISC form it came attached to doesn't specifically show a box or line that breaks down "back wages" only. I just need to put in a specific amount for that so I can finally click "Continue".

[36cimona55]

Sorry, forgot to mention that the single W-2 I got from my employer did not include anything about this "other income".

[Opus 17]

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@36cimona55 wrote:

Thank you. I received a 2 checks from a class action settlement totaling $900. The 1099 MISC form it came attached to doesn't specifically show a box or line that breaks down "back wages" only. I just need to put in a specific amount for that so I can finally click "Continue".

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Ultimately, if the IRS audits you, you will need to prove what the income was.  We can't help you.  There should be some kind of documentation associated with the law suit that tells you about the settlement, or you can contact the attorneys.  

If you received a W-2 and a 1099-MISC, then it's likely that the settlement was partly for back wages and partly for something else.  In that case, just enter the 1099-MISC as-is with the box 3 amount being considered "other taxable income" on your tax return and the W-2 being taxable wages. 

[36cimona55]

Ok then what I'll do is just put in the box 6 amount from 1099 MISC for the amount of back wages so I can move on to the next page. TT is very specific about this but again, it's not specifically mentioned or broken down in 1099 MISC. It does mention that "25% of individual settlement amounts are for unpaid wages" but nothing more. There are 11 separate lines showing different amounts on the bottom left corner of my 1099 form adding up to the check amount but none show anything for back wages specifically which TT evidently requires.  It won't even let me move on and return to that page later.

[DianeW777]

Since you don't have documentation about the amount for back wages and the Form 1099-MISC does not indicate any amount, then you should enter it as a legal settlement and follow the steps in the link below.

• Where do I enter the award for a taxable legal settlement?

You do mention that 25% indicates unpaid wages, and it's possible it is included in your W-2, but only you can make that determination as indicated by our Tax Champ @opus_17.

[Opus 17]

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@36cimona55 wrote:

Ok then what I'll do is just put in the box 6 amount from 1099 MISC for the amount of back wages so I can move on to the next page. TT is very specific about this but again, it's not specifically mentioned or broken down in 1099 MISC. It does mention that "25% of individual settlement amounts are for unpaid wages" but nothing more. There are 11 separate lines showing different amounts on the bottom left corner of my 1099 form adding up to the check amount but none show anything for back wages specifically which TT evidently requires.  It won't even let me move on and return to that page later.

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I don't understand what you are talking about.  

"Ok then what I'll do is just put in the box 6 amount from 1099 MISC for the amount of back wages"

Box 6 of the 1099-MISC is money paid to you for medical payments, not back wages.  

This is what a 1099-MISC should look like.  If the payer issued a "substitute 1099-MISC" statement, only the amounts that correspond to the official 1099 actually count.  (For example, box 3 of the 1099 is non-wage income. ) If you have a statement that summarizes different income calculations but they all total up to box 3 non-wage income, that is what you would enter in Turbotax.  It is very uncommon to have any other boxes in the 1099-MISC being used, even if your statement shows other info.  Read your statement very carefully and make sure you know what actually goes in the 1099-MISC boxes.

 

Your answers have been so confusing that I can't properly help you.  You have to know what has happened, only you have your documents.  You just said 25% is back wages.  So why don't you know the amount of back wages?

If you got a W-2 for part of the money and a 1099 for the rest, then all the W-2 is back wages and NONE of the 1099 is back wages.