I have a 1099 Misc for a settlement from a class action lawsuit. besides the 1099 Misc they inclueded on the same page a W2 for a small amount as earnings, the rest listed on the 1099 misc. Is that money taxable and if so does it go on line 21?

asked 28 Jan '11, 01:06

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Nancy
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edited 31 Jan '11, 01:08

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TaxQueries ♦♦
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Hi Nancy: You are very welcome. Glad I was able to help. Take care and feel free to stop by anytime.

(28 Jan '11, 19:50) Kristy M. W.

Hi Nancy,

I hope that the case was resolved to your satisfaction.

Because you’ve received a W-2 together with the 1099, I presume that the underlying cause of action was in fact employment related. Further, it appears that the payor of damages has specified which portion of the proceeds actually represent lost wages, which are taxable, and which portion of the proceeds are punitive damages, which also are taxable.

When determining the taxability of an award, the IRS considers the underlying cause of action. Were the amounts received a result of physical injury or sickness, emotional distress, employment related, discrimination, etc...? While you can exclude amounts from income that were awarded as a result of physical injury or sickness, you cannot exclude amounts that represent punitive damages.

Please see IRS Pub 525 (Taxable and Non-Taxable Income) under court awards and damages: http://www.irs.gov/pub/irs-pdf/p525.pdf

You might also review the instructions for Form 1040 Line 21 regarding miscellaneous income: http://www.irs.gov/pub/irs-pdf/i1040.pdf

And, check your records to see if the payor included a letter that gives you a breakdown of the settlement amounts.

Lastly, yes, you are correct; these amounts shown on the Form 1099 would be entered on Line 21 of form 1040, while the amounts on the W-2 shown in box 1 would be listed on line 7.

If my presumptions have been incorrect, the references provided will allow you to make a determination based on the underlying action in the case.

Best of luck!

link

answered 28 Jan '11, 02:34

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Kristy M. W.
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THANK YOU SO MUCH FOR YOUR PROMPT REPLY. you confirmed my thought of where to enter amounts on the tax form. I will also check out publication you mentiioned. this was a class action suit with Walmart, having to do with lunch and rest breaks so i believe taxable and no letter accompanied we/1099 misc sheet. thanks again.

(28 Jan '11, 15:28) Nancy
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Asked: 28 Jan '11, 01:06

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Last updated: 31 Jan '11, 01:08