How to handle non-taxable income reported on 1099-misc My wife purchased long term disability policy through her employer, paying 100% of the premiums with after tax dollars. When she was forced to use the policy, the insurance company reported it on a W-2 as nontaxable sick pay (Box 12 - Code J). After 2 years, the insurance company stopped paying the policy. After retaining an attorney to fight the company, a settlement was obtained for 30k (10k of it was attorneys fees). The settlement stated that the money was for the present value of past and future payments. My understanding is that the settlement should be nontaxable. The insurance company says that it is nontaxable but because of IRC section 6041, they have to report it on a 1099-MISC, box 3 Other Income. I believe that there should be no change and they should report it on the W-2. They refuse to change it. My question is - how should I show this, so the IRS sees the 1099 but it is still nontaxable? Appreciate any help in this matter. |