I received notification that I was to receive $2,994 as settlement for a class action law suit. The letter telling me this said 50% will be considered back wages and 50% will be considered income interest, liquidated damages and penalties. I received a check for $2,416. I then received a W-2 for $1,475 and a 1099-Misc for $2,994. That totals $4,469. Am I to now pay taxes that amount? I only received $2,416. Could this be correct?
No. The people issuing payments messed up. The 1099-MISC should have been the $2994 minus the wages of $1475. Call them and see if they will issue a corrected 1099-MISC.
If not, we can work around by deducting the extra income with an explanation but that is a bit of a red flag with the mismatched forms.
Try to get them to straighten it out. If they won't, you will need to follow these steps to enter the negative income: