Clipperclerk
Level 3
‎02-26-2022 03:01 PM

 A client has received a 1099-NEC for the amount clearly outline in the settlement agreement and general release as being intended to compensate for alleged emotional distress, personal injury, and physical sickness. Is this amount taxable income?

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Camp1040
Level 11
‎02-26-2022 03:56 PM

Personal injury in not taxable.

garman22
Level 13
Level 13
‎02-26-2022 04:28 PM

was some of it for loss of wages? Could they have been wrong on the breakdown?

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Clipperclerk
Level 3
‎02-26-2022 04:31 PM

There was a separate W-2 issued for the lost and unpaid wages awarded. 

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garman22
Level 13
Level 13
‎02-26-2022 04:39 PM

Ah, 10-4!!

I agree with @Camp1040

 

I'd call the attorney and find out why they showed this on the 1099. AND NEC? Not 1099-Misc?

 

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Clipperclerk
Level 3
‎02-26-2022 04:41 PM

Yes 1099-NEC. 

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Clipperclerk
Level 3
‎02-26-2022 04:43 PM

Yea that  is what I thought. Just wanted make sure not missing anything. Thank you to you and  @Camp1040

Camp1040
Level 11
‎02-26-2022 04:48 PM

From Forbes, , chain of events are a consideration.

If you make claims for emotional distress, your damages are taxable. If you claim the defendant caused you to become physically sick, those can be tax free. If emotional distress causes you to be physically sick, that is taxable. The order of events and how you describe them matters to the IRS.

Clipperclerk
Level 3
‎02-26-2022 04:51 PM

Interesting. Thank you for additional info regarding chain of events consideration

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