How are 1099-MISC taxed?

Question

My insurance company is giving me a check and will be reported as a 1099-MISC to reimburse me for the taxes i will have to pay the IRS because of a mistake that was made by them.

Being that this check is being dispersed to me to repay the tax consequences I will incur due to their mistake, I want to make sure im not going to be responsible for any additional taxes on this reimbursement amount.

Can anyone clarify how this amount will be treated or if there are any special steps or notations i should make when I file my return?

Part 2:

Also if this is entered as income - is there a way to explain this was used as an expense? I have seen that for consultants, materials that were purchased can be subtracted from the 1099-MISC amount if they were included in the project cost and not paid by the employer.

My situation to me sounds similar to that of a consultant, but looking to get the perspective of others.

thanks in advance

Answer 1

Income given to you on a 1099 misc is taxable to you. Where you put it depends on which box of the 1099 the income is entered. The most common is box 7 non employee compensation, this means you are a sub contractor. From what you say the insurance company will probably put it in box 3 other income, which you would report on line 21 form 1040

Answer 2

From the information that you have provided it would appear that the 1099 MISC will have an entry in box 3 which will be reported as other income on line 21 of your 1040 tax return. In most cases you would be able to take the expenses associated with receiving this income as a miscellaneous deduction on Schedule A. There could be a problem if you do not itemize your deduction or your miscellaneous deductions do not exceed the 2% limitation. In that case you are going to pay tax on this money. For most situation of this nature the insurance company increases the amount they provide to take care of that cost of that tax.

Answer 3

When you receive 1099-Misc, see on which Box number the income is reported.
Go to the IRS site and download form 1099-Misc. The form has a page "Instructions for Recipients". It tells you where you must report the income.
http://www.irs.gov

Answer 4

I'm struggling to figure out how the payout from an insurance company would result in taxable income to you. Insurance payouts that make you whole again are not taxable. If you claimed it as taxable income, that's your fault not theirs. If they overpaid you then the excess is taxable income but again that's not their fault per se but is just the facts of life.

All of that said, however, if your insurance company is reimbursing you for taxes you paid, THAT is taxable income to you. It goes on line 21 of Form 1040.

If they committed a clerical error the resulted in the IRS treating the money as taxable then they need to correct that error and you need to file an amended return. If that was the result of a court ruling then you may need to go back to court for a Nunc pro Tunc ruling to correct the original decision to what it should have been in the first place. Lacking either of those, it's taxable income to you.

Federal income taxes paid are never deductible as a business expense.

Answer 5

I also asked the same question four times, and haven't gotten a proper answer

Answer 6

Maybe so