A little bit of a complex situation. In 2022 I received a settlement from a previous employment for a claim of age discrimination. The employer issued three (3) checks. One check is a pay check for back wages paid to me in 2023. That's pretty straight forward. One check is for Non wage compensation they called "Pain and suffering". For that one I got a check and they sent a 1099-MISC with the amount in box 3. One check was sent directly to the law firm for their 40% take. I got a 1099-MISC for that in 2022. I entered the law firm 1099 in my 2022 taxes and reduced the amount of the 1099 to zero by adding the total amount to Section 2 worksheet in the "Legal fees for discrimination" line. That made it zero for me.
However, now in 2023 I have the pay stub and the 1099-MISC described above. One response in the community says to ignore the 1099 and another says to enter it with a trailing 1099-MISC for a negative amount. That doesn't work in TT, best I can tell. My question is, should I just not enter the 1099-MISC? Or should I list the legal fees again in the deduction box even though I did that in 2022 to zero out the payment to law firm? Should I amend 2022 and remove the law firm 1099-MISC, add it to 2023 and than put the full deduction amount in?
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You don't need to amend your 2022 return to change the reporting of your settlement amount that went to attorney fees.
When you enter your total settlement amount in TurboTax, you are asked how much of the amount is for 'back wages' so you will be able to separate that out.
Here's How to Enter a 1099-Misc for a Settlement.
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