Sexual harassment lawsuit...given 1099MISC in Box 7

[Just-Lisa-Now-]

Filed claim for sexual harassment, wrongful termination that was settled out of court.  

Issued a W2 for compensation - no problem

Temp agency that she was working for issued a 1099MISC income in Box 3

Actual company she was working for issued 1099MISC income in Box 7

Company paid attorney fees, she didn't have to pay them out of her settlement, so no issues there.

What I'm reading (IRS lawsuits, awards, and settlements audit techniques guide) is that this is all taxable income, unless she suffered some kind of physical or emotional injury and the income was for medical care (therapy etc)...am I interpreting this correctly?

I cant imagine this being considered NEC income since she got the W2 for compensation, so I'm going to move over it to Other Income.

Am I missing anything that might make any of this potentially non-taxable? 

[Terry53029]

a few years ago the IRS started sending notices to anyone w/1099misc box 7 and no schedule C with SE due, so you might not want to put on line 21. I also believe it is all taxable

[Just-Lisa-Now-]

I'd put it on Sch C, to avoid the CP2000, but take it back off and then put it on Line 21.

I think its all taxable too, but I felt bad for her and told her Id do some more research and let her know for sure. It was $12,000 total that she got, she ends up owing about $800 between fed and state, but shes young and everyone wants that refund! LOL so I figured it didn't hurt to ask around.

[TAXOH · Accepted solution]

I had 1 exactly like that a few years back and we had them issue a corrected 1099 with the amount in box 3.

[Accountant-Man]

The 1099 is taxable income, not SE income. Either get it corrected to box 3 or file the Sch C with the gross income and then back it out and put on line 21.

[Just-Lisa-Now-]

I just called, sounds like they've got their company phone being auto forwarded to a cell phone, the message tells me its a totally different phone number than I dialed.  I'll try them again in the morning.

[abctax55]

My office manager, when she was *just* a client, was badly injured in a head-on collision (over ten years ago).  She had to go thru an attorney to get a reasonable settlement. The F 1099 showed up with the amount as NEC.   I still remember the battle I went thru to get it corrected.  

I'd get it corrected rather than the in/out on Schedule C just in case there are any questions two/three years from now.  The Company might not still be in business then.

[Just-Lisa-Now-]

I'll give them a call and see how far I get...I'm just afraid they wont correct it properly and just send in another one with Box 3 and the income will be doubled up.

[abctax55]

NO.... "that" never, ever happens, does it ??  :joy:

[TaxGuyBill]

I agree, the audit guide says that sexual harassment settlements are taxable.

You also say "wrongful termination".  Is that for missed pay?

As for box 7 ... that is usually for "services" ... sexual harassment ... hmmm.  

[TAXOH]

That was my argument with the attorney.   She is not in the business of getting sexually harassed.

[Just-Lisa-Now-]

Looks like $6000 was included on the W2 and taxed, then $6000 on a 1099MISC Box 3 were from the temp agency she was working for, then the actual business issued her a 1099MISC with $6850 in Box 7.   

I think the business messed up and didn't know what they were doing when they put it in box 7.

[Just-Lisa-Now-]

"She is not in the business of getting sexually harassed."  right?!?

[abctax55]

TGB...too funny 🙂

[IRonMaN]

I'm guessing you need to have the sexual stuff to make the big money?  My ACME attorney said I wouldn't make more than 10 points if I sued for the harassment I receive here :cry: