Don't forget to consider state taxes too! While the federal treatment might be non-taxable, Minnesota might have different rules for disability settlements. When I had a similar situation in Illinois, the federal government didn't tax my settlement but the state wanted their cut. Check with the Minnesota Department of Revenue or a local tax professional familiar with state-specific rules.

I'm dealing with a very similar situation right now with a different insurance company. One thing I learned from my attorney is that you should get a detailed breakdown of the settlement amount in writing that specifically categorizes each component - back benefits, attorney fees, any interest or penalties, and the debt forgiveness portion. This documentation will be crucial for tax purposes and also for protecting your SSDI eligibility. The categorization helps show that the bulk of the settlement is just replacement of benefits you should have received anyway, not new income. Also, regarding the trust - make sure you set that up BEFORE the settlement funds hit your personal account if possible. Having a large lump sum in your account, even temporarily, could potentially impact SSDI eligibility depending on the timing of their reviews. Some attorneys can arrange for the settlement to be paid directly into a properly structured special needs trust. The fact that your attorney mentioned it's probably not taxable is encouraging, but definitely get that professional tax opinion before the money arrives. Better to spend a few hundred on proper advice now than deal with IRS issues later.

PSA: The deluxe version of TurboTax is almost always available for much less at Costco or Amazon than directly from TurboTax. I got mine for $45 at Costco compared to the $119 on the TurboTax site.

I went through this exact same situation last month! The "Nonrefundable credits 1030" message is super frustrating, especially when you're trying to file for free as a recent grad. Since you mentioned you're making student loan payments, that's definitely what's triggering the upgrade requirement - the student loan interest deduction forces you into the paid version on TurboTax. Here's what I'd recommend: Before paying the $113, try the IRS Free File program that Tyler mentioned above. Since you're a recent grad, you'll almost certainly qualify based on income. Go to irs.gov/filing/free-file-do-your-federal-taxes-for-free and access TurboTax through there - you'll get the same deluxe features for free, including handling your student loan interest and any state move complications. If for some reason Free File doesn't work out, FreeTaxUSA is genuinely great for multi-state situations. I used it when I moved from Texas to Colorado and it handled everything smoothly for way less money. Don't feel bad about almost falling for the upsell - they make it seem like you absolutely need to upgrade when often you don't, or there are free alternatives that do the same thing!

Make sure you check if you need to file state amendments too! Everybody's talking about the federal return but depending on your state, you might need to file a state amendment too after you fix the federal one.

The good news is that filing an amended return proactively is actually viewed favorably by the IRS - it shows you're being honest about the error rather than trying to hide income. I've been through this exact situation before. Here's what I'd recommend: 1) File Form 1040-X immediately to minimize interest charges, 2) Include a brief explanation that your preparer omitted the 1099-NEC despite you providing it, and 3) Pay any additional tax owed as soon as possible to stop interest from accruing. The IRS matching system will definitely catch this - they get copies of all 1099s electronically and run automated comparisons. Better to fix it now than wait for them to send you a notice with higher penalties. Your original refund should still process normally while the amendment is being reviewed separately.

Something weird I noticed - you mentioned filing Form 5389 but that's not a tax form. Did you mean Form 5329 for Additional Taxes on Qualified Plans? That's the form you need for reporting excess contributions.

Just to add some clarity on the timeline and penalties - you're actually in a bit of a gray area that might work in your favor. While it's true that the ideal window to avoid penalties completely was by October 15, 2024, the fact that you caught this early in 2025 and took immediate corrective action shows good faith effort. When you file Form 5329 with your amended 2023 return, you'll calculate the 6% excise tax on the $6,500 excess for 2023. However, since you removed it promptly in 2025, you won't owe the penalty for subsequent years. One important note: make sure Fidelity codes the 1099-R correctly. It should show distribution code "J" (early distribution from Roth IRA) for the earnings portion. The $6,500 principal won't be taxable since Roth contributions are made with after-tax dollars, but the $350 in earnings will be subject to both income tax and the 10% early distribution penalty on your 2024 return. Consider keeping detailed records of when you discovered the error, when you contacted Fidelity, and when the funds were returned. This documentation could be helpful if the IRS has any questions about your timeline and good faith effort to correct the situation.

Has anyone used TurboTax to calculate wash sales? I have their Premier version which supposedly handles investments, but I'm not sure if it correctly identifies wash sales across multiple transactions.

Great breakdown of the wash sale rules everyone! I've been dealing with this exact issue and wanted to add a few practical tips that have helped me: 1. Keep detailed records of ALL your trades with dates - not just what your broker reports. Some brokers don't track wash sales across different account types (like if you have both a taxable and IRA account). 2. Be extra careful with dividend reinvestment plans (DRIPs). If you sell a stock at a loss and have automatic dividend reinvestment turned on, those reinvested dividends within 30 days can trigger wash sale rules too. 3. Watch out for mutual funds and ETFs that might hold the same stocks you're trading individually. I got burned on this - sold individual tech stocks at losses but my mutual funds were buying the same companies, which created wash sales I didn't expect. The 30-day rule goes both directions too (before AND after the sale), so it's actually a 61-day window to be careful about. I learned this the hard way when I thought I was being smart by waiting exactly 30 days to repurchase. Thanks for sharing those tool recommendations - definitely going to check them out before next tax season!