When we settle with a defendant for an amount of $600 or greater, sometimes the defendant will issue an IRS 1099 form to both you, and to us on the same money. While we do not give tax advise, I will advise you of what I have learned.
While I do not give tax advice as I am not qualified to do so, I am happy to pass on to you what I have learned from a conference at the National Consumer Law Center (“NCLC”). NCLC is a non profit organization that advocates for consumers. Every year, they hold a seminar for Consumer Lawyers such as myself. In their 2021seminar, they addressed the 1099 issue as follows.
According to the NCLC, if you get a 1099, that does not mean that you necessarily have to pay tax on that money. You do have to report the receipt of that 1099 on your tax return. NCLC suggested that on the line for Misc. Income, you show each 1099 amount that you received. Also, on that line, explain that your attorney received the same 1099 and paid tax on that money. You then report the amount of money that you received from us and pay tax on that money. Hence, if you received a 1099 for $5,000 but only received $1,000 from us, you should pay tax only on the $1,000 according to the NCLC.