Nonemployee Compensation

cokerthejoker100 · #1 (**permalink**) 02-18-2014, 02:04 PM

I received 2 checks in Dec. 2013 as a class action settlement. Both checks were in the same amount: however, one check was for back wages and was reported and taxed on my w-2. The other check was for liquidated damages, designated as non taxable wages.

Early Feb. 2014, I received a w-2 reflecting the back pay check with my regular income, but nothing for the liquidated damages check. I filed my taxes with the AARP tax assistance group and was told I would not receive a 1099 for this and that it would not be taxed. I subsequently received a 1099-Misc with the liq. dam. reported as "Nonemployee Compensation". AARP volunteers and I are not sure how to handle this.

Wnhough · #2 (**permalink**) 02-19-2014, 01:53 AM

Quote:

Originally Posted by cokerthejoker100

#1;I received 2 checks in Dec. 2013 as a class action settlement. Both checks were in the same amount: however, one check was for back wages and was reported and taxed on my w-2. The other check was for liquidated damages, designated as non taxable wages.

#2;Early Feb. 2014, I received a w-2 reflecting the back pay check with my regular income, but nothing for the liquidated damages check. I filed my taxes with the AARP tax assistance group and was told I would not receive a 1099 for this and that it would not be taxed. I subsequently received a 1099-Misc with the liq. dam. reported as "Nonemployee Compensation". AARP volunteers and I are not sure how to handle this.

#1;correct; it is taxable;if a taxpayer receives an award of back pay that constitutes wages, it generally would be reportable on Form W-2, not Form 1099-MISC.

#2;in general, Unless a settlement is for personal injury compensation , pain and suffering/ reimbursement for property losses, you need to declare it as taxable income; IRS treats liquidated damages as taxable income. as the amount was reported in box 7, you are also subject to self employment (SECA tax) tax on sch SE . Any payments not subject to the self-employment tax and that don't fit anywhere else on the 1099-Misc must be put in Box 3.