Unless you are an attorney, you shouldn't have to file a Schedule C. TurboTax is automatically using Schedule C because the amount is in Box 14, Gross Proceeds Paid to an Attorney. TurboTax assumes you are an attorney and this is income you earned. You can try calling the company that issued the 1099-MISC to see it they will correct it.
According to the IRS, if the pain and suffering did not originate with a physical injury or sickness, you should report this on Line 21 Miscellaneous Income after you deduct related medical expenses. Report the net amount on Line 21. You can go ahead and report it on Line 21 and if the IRS questions it, have your documentation ready. Here is was the IRS says:
Click here to read more: IRS Publication 4345 -
Settlements Taxability
"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 21 of Form 1040.
If the pain and suffering originated from a personal physical injury or physical sickness, you treat the settlement the same for tax purposes as you did the proceeds for physical injury and physical sickness. If you receive a settlement for personal physical injuries or physical sickness and did not take an
itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount
is non-taxable. Do not include the settlement proceeds in your income.
Click here to read more: IRS Publication 4345 - Settlements Taxability
Here is how to enter it to line 21 in TurboTax:
Under Wages & Income tab:
- On Your 2017 Income Summary, scroll down click on Start next to Miscellaneous Income,
- Then scroll down and choose Other reportable income
- Answer Yes to "Any Other Taxable Income?"
