Question

Unlawful discrimination dispute settlement

Forum|Forum|5 years ago
November 25, 2020
1 reply
0 views

I have received $45,000 from unlawful discrimination dispute settlement. Employer in the settlement agreement has denied the discrimation allegation but has agreed to pay $45k. My attorney fee to settle this case is 18,000.

My employer will issue a 1099 MISC for 45K. which IRS forms do I need to fill to deduct legal fee of 18k.

Critter-3

Generally speaking, payments for personal injury or property damage are not taxable, but recoveries for punitive damages or lost wages/income are taxable.

There are a number of variations (like, if you deducted medical expenses in a prior year that are now paid off by the settlement, you have a report a reimbursement of a deduction, and that is taxable. Or, if you received money for your damaged car and the money is more than the car was worth, the excess is taxable). This link provided gives more examples. http://www.irs.gov/pub/irs-pdf/p4345.pdf

Your attorney costs are deductible, but only as far as the damages are taxable (if 50% of your damages are taxable, then 50% of your fees are deductible). And they are a miscellaneous deduction subject to the 2% rule, so you may or may not actually benefit from claiming the deduction.

In a perfect world, you would receive a 1099-Misc from the payer that only lists the taxable part (wages and such).

https://ttlc.intuit.com/questions/1901380-entering-an-award-from-a-legal-settlement-in-turbotax

D

dbadkn12Author

I would like to know the following:

1) Which IRS form(s) do I need to fill to deduct Legal fee of 18K.

2) Employee will issue a 1099 MISC showing my total settlement amount of 45K

My net taxable should be 45k MINUS 18K.

Thanks for your help

Critter-3

Unlawful discrimination claims. You can deduct certain attorney fees and court costs for unlawful discrimination claims, described earlier, on your Schedule 1 line 8 ... you will enter the total 1099 income and then make a separate entry for the attorney fees.

Reporting this in TurboTax will be a two-step process, first to include the 1099-MISC as income and then to make a negative adjustment to remove it.

To include the 1099-MISC as a part of your tax return, follow these steps:

On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
This opens a box where you can type in “1099-MISC” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
The search results will give you an option to “Jump to 1099-MISC"
Click on the blue “Jump to 1099-MISC” link
Answer Yes you did receive a 1099-MISC
Fill in the details from your 1099-MISC then click Continue
Provide a short description for the reason you received the 1099-MISC then click Continue
On the next screen titled, “Does one of these uncommon situation apply?” choose the last option, None of these apply and then click Continue
On the next screen asking if the 1099 involved work like your main job, answer No and click Continue
On the next screen, check the box that you received the income in 2019 and then click Continue
Finally, choose “No, it didn’t involve an intent to earn money” and click Continue
Answer the questions on the next couple of screens to finish the process

Now the income shown on the Form 1099-MISC has been added to your return. Next, it will be “removed” from the return.

Follow these steps:

Go to Federal Taxes > Wages & Income and scroll to the bottom of the screen to the Less Common Income section (expand the section by clicking Show More if necessary)
Click Start or Update beside Miscellaneous Income, 1099-A, 1099-C
Scroll to the bottom of the list and click Start or Update beside Other Reportable income
Answer Yes to move forward
Enter a brief description, such as “settlement refund adjustment,” and the amount reported on the 1099-MISC as a negative number then click Continue
Click Done

When you see your Form 1040 Schedule 1, the amount shown on the Form 1099-MISC will be reported twice on line 8 – once as a positive amount and once as a negative amount.