How to report income from class action settlement split between forms W-2 and 1099-MISC?
For reference, the total allocated amount was $2,700.
The instructions are “The parties agree that 50% of individual settlement amounts are for alleged unpaid wages, and subject to payroll taxes to be reported on an IRS W-2 and 50% shall be allocated as penalties and interest and will be reported on IRS Form 1099. California's EDD requires separate reporting for SDI, which is reported under Defendant's tax ID. The remaining taxes withheld from your settlement payment are reported under the settlement fund's TAX ID."
When I received the check, I also got two W-2s and one 1099-MISC forms, with the following information:
- W-2 from the Settlement Fund where ALL income-related boxes are filled out EXCEPT for box 14 OTHERwhere it's $0.00
- W-2 from the sued former Employer (defendant) where all income-related boxes are blank EXCEPT for box 14 OTHER where there's an amount for CA SDI.
- 1099-MISC from the Settlement Fund where the only income-related box filled out is box 3 OTHER INCOME.
How do I properly report this income?
To report the unpaid wages amount received, I filed a W-2 under Settlement Fund, with all the withheld payroll taxes listed.
Now, do I have to file a separate W-2 just to report the CA SDI under the former Employer (defendant)? I have no other amounts to report from the former Employer (defendant). I tried to file a W-2 to report only the CA SDI under box 14 OTHER, but it won’t let me do it unless I put 1$ in the wages box. I’m afraid this will trigger some error with the IRS.
To report the penalties and interest amount received, do I have to file form 1099-MISC? Or can I just add the amount under Uncommon Income as Other Income, and describe it along with the amount, without having to create a new form?
Thanks so much in advance!
Answers
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It looks like this discussion mentions how other people have filed settlement income
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Thank you for your reply @knittingfun ! I had seen that post before, but decided to ask around anyways because in my case I did receive a 1099-MISC form, and there were the other specifics that I needed help with. Since I need to get this done already, I decided to:
- report the W-2 from the settlement fund and not report the W-2 from the defendant company that only has the California SDI amount collected but $0 wages to report.
- add the remaining income to the form 1099- MISC instead of just adding it as Uncommon Income > Other Income.
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Hello, I am in the exact same boat as you (received a settlement check along with two W-2 forms, one 1099-MISC, with one of the W-2 showing just the CA SDI from the defendant company). Wondering how to report all these in Freetaxusa.
If you filed them the way you mentioned you would in your last post, did you have any problems or receive any notice from the IRS about it? Or even a notice that your tax report has been approved? Is it alright not to report the SDI W-2 form? Just trying to get this done without raising any eyebrows at the IRS. Thanks very much in advance!
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Hi @Taxes4Bruce, I'm sorry to hear you're in the same situation. I've spent so much time looking this up and found nothing. I ended up postponing and only filling it today, exactly in the way I described. It's too soon to know if it's ok but I'm keeping my fingers crossed. Best of luck to you!
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