Personal Injury Settlement - 1099 issued

[kkbakunas]

I was awarded a medical settlement for personal injury that is considered non taxable, confirmed by the attorneys. However, I just got a 1099 Misc from the company I was awarded the settlement by with the full amount listed as "Other Income" - I can't see how to enter this in TT without it taxing it. Do I need a revised 1099 that states the amount is 0? Help!"

[ChristinaR]

Yes, your best course of action would be to get the 1099-MISC corrected, since the IRS will receive a copy and expect to see it on your return.  

If you are not able to get a corrected form issued, an alternative would be to enter this 1099-MISC in TurboTax.  The amount will be transferred to line 21 of your 1040.  Then, to correct, you will navigate to: 

• Personal Income tab (in the Home & Business program)
• Less Common Income Section 
• Click Start next to Miscellanous Income 1099-A, 1099-C
• Click Start next to Other reportable income

You'll be asked Did you receive other reportable income?  You'll answer yes.  On the next screen, you will enter a negative amount equal to the amount reported on the 1099-MISC, along with an explanation in the Description box (e.g. Incorrect 1099-MISC received for personal injury settlement).  This negative amount will then be transferred to line 21 of the 1040 and "zero out" the previously-reported 1099-MISC.  This will result in the correct tax treatment, while also properly reporting the 1099-MISC.  

You mentioned that the taxability was confirmed by your attorney, but please make sure that this was not an amount that represents punitive damages, as they are taxable, even if the punitive damages were received in a settlement for personal physical injuries or physical sickness.

[oliviarosevanbus]

I found this works for the federal returns but does not work for NJ State return.

[davem319]

I'm not sure the 1099 issuer can issue a different type of 1099.   How would the issuer modify the 1099 and still comply with their reporting obligation ??   Is there another type of 1099 for this [personal injury settlement]?

I was surprised to see that the suggested work around (entering an "offset" amount in a different section) actually does work and has the result of showing the 1099 on Schedule 1 along with the offsetting reduction on a separate line, completing the obligation to report the income without including the total in taxable income.