1099-MISC - - not fair =(

[rjeffery1]

What is the name of your state? GEORGIA

I have a problem. I recently received a 1099-Misc from a former employer I worked for back in 2004 and 2005. I was terminated in December of 2005. I filed a complaint with the EEOC a few months later. We went to Mediation and came to a settlement. They agreed to pay me $4000.00 as long as I withdrew my discrimination complaint. I took the settlement. Well now I got a 1099-MISC with line 7 in the amount of $4000.

I don't quite understand why my former employer is trying to report the settlement on a 1099. I am no longer an employee and I am not an independent contractor. I did no work for them at all in 2006.

I am not sure what to do. When I add the form 1099 MISC into my tax return it took me from getting a refund of $282.00 to having to pay $868.00.

Please give me some advice. I am not financially able to pay $868 to the IRS. Can I dispute a 1099-Misc?

[efflandt]

Well, it is taxable income. And since you are no longer an employee you do not get a W-2. So how do you propose that they report it, if not on a 1099-MISC?

[rjeffery1]

How is a settlement to get you to drop your discrimination claim income? It's not back wages or anything like that. It was money given to me to drop my compliant, so therefore it shouldn't be taxable.

Is there anyway to dispute the 1099?

[LeeHarveyBlotto]

Originally Posted by rjeffery1

It was money given to me to drop my compliant, so therefore it shouldn't be taxable.

Based on what law?

[TinkerBelleLuvr]

http://www.irs.gov/pub/irs-pdf/p525.pdf

see page 2 on Miscellaneous income.

Which box did they fill in on the 1099-Misc?

Other items required to be reported in box 3 include the following.

Generally, all punitive damages, any damages for nonphysical injuries or sickness, and any other taxable damages. Report punitive damages even if they relate to physical injury or physical sickness. Generally, report all compensatory damages for nonphysical injuries or sickness, such as employment discrimination or defamation. However, do not report damages (other than punitive damages):

Received on account of personal physical injuries or physical sickness;

That do not exceed the amount paid for medical care for emotional distress; or

Received on account of nonphysical injuries (for example, emotional distress) under a written binding agreement, court decree, or mediation award in effect on or issued by September 13, 1995.

Damages received on account of emotional distress, including physical symptoms such as insomnia, headaches, and stomach disorders, are not considered received for a physical injury or physical sickness and are reportable unless described in b or c above. However, damages received on account of emotional distress due to physical injuries or physical sickness are not reportable.

Also report liquidated damages received under the Age Discrimination in Employment Act of 1967.

Taxable back pay damages may be wages and reportable on Form W-2. See Pub. 957, Reporting Back Pay and Special Wage Payments to the Social Security Administration.

http://www.irs.gov/instructions/i1099msc/ar02.html#d0e621

[rjeffery1]

They put the info in box 7 for nonemployee compensation.

[TinkerBelleLuvr]

Box 7. Nonemployee Compensation
Enter nonemployee compensation of $600 or more. Include fees, commissions, prizes and awards for services performed as a nonemployee, other forms of compensation for services performed for your trade or business by an individual who is not your employee, and fish purchases for cash. Include oil and gas payments for a working interest, whether or not services are performed. Also include expenses incurred for the use of an entertainment facility that you treat as compensation to a nonemployee. Federal executive agencies that make payments to vendors for services, including payments to corporations, must report the payments in this box. See Rev. Rul. 2003-66, which is on page 1115 of Internal Revenue Bulletin 2003-26 at www.irs.gov/pub/irs-irbs/irb03-26.pdf.

Exceptions. Do not report in box 7, nor elsewhere on Form 1099-MISC, the cost of current life insurance protection (report on Form W-2 or Form 1099-R); an employee's wages, travel or auto allowance, or bonuses (report on Form W-2); or the cost of group-term life insurance paid on behalf of a former employee (report on Form W-2).

Self-employment tax. Generally, amounts reportable in box 7 are subject to self-employment tax. If payments to individuals are not subject to this tax and are not reportable elsewhere on Form 1099-MISC, report the payments in box 3. However, report section 530 (of the Revenue Act of 1978) worker payments in box 7.

http://www.irs.gov/instructions/i1099msc/ar02.html#d0e621

It's correct that they should report this to the IRS - they used the wrong box. Ask for an amended 1099-Misc with the amounts to be reported in box 3 instead of 7.

[tranquility]

It is impossible to tell without seeing the settlement agreement and reviewing the complaint. It might be appropriate to issue a W-2 for at least part of the income.

[LdiJ]

Originally Posted by tranquility

It is impossible to tell without seeing the settlement agreement and reviewing the complaint. It might be appropriate to issue a W-2 for at least part of the income.

I agree. If an employer issues a payment as settlement for wages that should have been earned/paid, then the employer should have issued a W2 for the income, should have withheld taxes, and should have paid the employers share of social security and medicare taxes. Any portion that was punnies could have been reported on 1099 Misc as other income, but not as non-employee compensation.

Personally, I would recommend reporting it on form 8919 with a disclosure statement. There isn't enough money involved to waste money on an attorney handling the matter, and without one its not too likely that the company will be cooperative about correcting things.