USA 1099 for pain and suffering lawsuit.

[eaglesfan146]

Won a lawsuit again previous employer for pain and suffering. These types of lawsuits are NOT taxable. The question is, since I received a 1099 with the amount in box 3, how do I handle it. The 1099 doesn't say what it is so the IRS just sees it as income.
Thanks for any help.

 

[DrStrangeLove]

IRC 104(a)(2) says that "the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness" is excluded from income, so it wouldn't be reportable. You might have gotten a 1099-MISC because part of your award is reportable.

Without knowing the details, I'd ask the following:

• Was any part of your judgment/settlement/award for punitive damages or loss of income? Punitive damages (except for wrongful death (IRC 104(c)(1)) and payments that are replacement of income are generally includable in income.
• 
  
• Was your award for more than your actual losses? Is the amount in your 1099-MISC the difference between your award and your actual losses? Do your court documents detail what that particular amount is for? Your award might break it out into taxable/nontaxable parts.

This is a discussion probably best had with your attorney and/or a tax attorney.

As for the mechanics, if you're filing a Form 1040, I think it goes in Schedule 1, line 8z, which eventually goes into Form 1040 line 10.

 

[bkcpa]

If you conclude that it is not taxable, report as income as mentioned above and also report as an other adjustment on schedule 1, line 24z.

This way you'll mitigate your chances of an audit for under reporting your income.