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Hi and welcome to Just Answer!You are correct - see IRS publication 525 - Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).Thus - the amount of settlement that is a compensatory damages for personal physical injury is not taxable - and should not be reported on form 1099MISC.If your employer incorrectly reported that amount - you need contact the payer and ask to correct form 1099MISC. If they refuse - you may file a formal complain to the IRS.There is no separate form to request refund for withheld taxes - all withheld amount you need to report on your tax return - form 1040 - line 62 - www.irs.gov/pub/irs-pdf/f1040.pdfThen - you will calculate your actual tax liability and if withheld amount is more than your actual tax liability - you should calculate your refund on line 73.
Do not include into taxable income nontaxable portion of the settlement. If your employer will refuse to correct form 1099MISC and still will report on that form nontaxable part of the settlement - you would need to attach a note to your tax return - explain your circumstances and that you contacted the payer asking to correct. In additional - to support your position - you may attach a copy of the settlement document.
Considering large amount - most likely - the IRS would not release your refund immediately, but as long as your arguments would be accepted - the full refund should be issued.
Please be sure ask for clarification as needed.