1099s for lawsuit settlements....
This is a question we are ask this time of year, so here are some Quick guidelines:
The Instructions for Forms 1099, 1098, 5498 and W-2G provides instructions on the items to be reported.
In lawsuit settlements, the person with the obligation to report payments to the plaintiff, possibly on the 1099, will generally be the defendant or its insurer (the paying party) rather the plaintiff's attorney. In addition, the defendant or its insurer will also generally be responsible for reporting payments to the plaintiff's attorney.
Box 3 of Form 1099-MISC is used to report other income that is not reportable in one of the other boxes on the form. Generally, all punitive damages (even if they relate to physical injury or physical sickness), any damages for non-physical injuries or sickness, liquidated damages received under the Age Discrimination in Employment Act of 1967, and any other taxable damages are required to be reported in box 3.
Generally, all compensatory damages for non-physical injuries or sickness (for example, emotional distress) arising from employment discrimination or defamation are reportable in box 3.
Keep in mind if the settlement specifically states a taxpayer receives an award of back pay that constitutes wages, it generally would be reportable on Form W-2, not Form 1099-MISC.
The following damages (other than punitive damages) are not reportable in box 3 of Form 1099-MISC:
- Damages received on account of personal physical injuries or physical sickness
- Damages that do not exceed the amount paid for medical care for emotional distress; or
- Damages received on account of non-physical injuries (for example, emotional distress) under a written binding agreement, court decree, or mediation award in effect on or issued by September 13, 1995.
Here is also a related fact - In addition, the exemption from reporting payments made to corporations no longer applies to payments for legal services. Therefore, for 1998 and later years, attorney fees (in box 7) or gross proceeds (in box 13), as described above, paid to corporations providing legal services are reportable.
Please give us a call to discuss this or any of our other topics with you, so we can address your specific requirements.
DiSabatino CPA
Michael DiSabatino
651 Via Alondra Suite 715
Camarillo, CA 93012
Phone: 805-389-7300
ww.sharpcpa.com
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