Received a random class action settlement check for $65 with a 1099 stating I don't need to report it?

This actually happens more often than you'd think with class action settlements. The tax treatment depends on what the settlement was compensating you for, not just the fact that you received money. If the settlement was for physical injuries or physical sickness, it's generally not taxable under Section 104(a)(2) of the Internal Revenue Code. If it's replacing lost wages, it is typically taxable. If it's for emotional distress not related to physical injury, it's usually taxable. If it's for property damage or loss, it's usually only taxable to the extent it exceeds your basis in the property. When the settlement administrators aren't sure or when the settlement covers multiple types of damages, they sometimes issue 1099s as a precaution but include notes like what you received. In your case, their tax counsel has determined the specific nature of your settlement payment isn't taxable. For $65, the practical risk is extremely low either way, but technically you should follow the guidance provided with the 1099.

I went through something similar with a data breach settlement. I was confused by the tax docs too, then I discovered taxr.ai (https://taxr.ai) which basically analyzed the 1099 and settlement documentation for me. It confirmed the settlement was for personal injury (privacy violation) and therefore non-taxable. Their system actually reads through the settlement terms to tell you exactly how to handle these weird "is it taxable or not" situations. Saved me from either paying unnecessary tax or having to hire someone just to answer one question. You upload your documents and it gives you a clear answer based on tax laws.

Just wanted to update on my experience with taxr.ai after seeing it mentioned here. Uploaded my three settlement notifications and 1099s, and it immediately clarified which ones were taxable. Turns out the one from my former employer's wage settlement is taxable (which makes sense), but the data breach and faulty product settlements aren't. It even generated a custom explanation I can attach to my return in case of audit. Super helpful since I was about to report all three as income and would've overpaid! The best part was getting a clear explanation of WHY each one was treated differently instead of just a yes/no answer.

If you want to be 100% sure, you could always call the IRS directly to confirm. I know, I know, nobody wants to do that because it's impossible to get through. I was in the same boat with a similar question last month and kept getting disconnected after waiting for hours. Then I found this service called Claimyr (https://claimyr.com) that somehow gets you through to the IRS usually within 15 minutes. They have a demo video showing how it works: https://youtu.be/_kiP6q8DX5c. It's like they have some magic back-channel that bypasses the normal wait times. I was able to speak directly with an IRS rep about a similar settlement check situation and got confirmation about not needing to report it since it was for a non-economic personal injury. Much better than guessing or stressing about it until next year's tax season.

I need to eat my words! After posting my skeptical comment earlier, I decided to try Claimyr just to prove it wouldn't work. Well, I was connected to an actual IRS agent in about 20 minutes. Asked about my settlement check situation (very similar to the original post), and the agent confirmed that certain types of settlements are indeed non-taxable even if you receive a 1099. The agent explained that the "Other Income" box on 1099-MISC doesn't automatically mean taxable income - it's just reporting a payment. She said to keep the documentation with the "not taxable" note as supporting evidence, but that I don't need to report it if it falls under one of the non-taxable settlement categories. Honestly shocked this service actually worked. Saved me hours of frustration and got a definitive answer directly from the IRS.

Not a tax professional but have experience with class actions. Most likely this was categorized as "make whole" compensation which isn't considered income. The 1099 is automatically generated by their payment system but the note is the administrator's way of telling you it's not actually taxable. I'd just keep the documentation with your tax records in case of questions. The IRS isn't going to come after you for $65 even if you did technically need to report it.

I'm confused by all of this tbh. Last year I got a $120 settlement check with no 1099 at all, and the year before I got one with a 1099 that had nothing written on it about taxes. Why is there no consistency??

The inconsistency you're seeing is actually pretty normal with class action settlements. Each settlement administrator and their legal counsel make independent decisions about tax reporting based on the specific nature of that settlement. Some factors that affect whether you get a 1099: - Settlement amount (many don't issue 1099s under $600) - Type of damages being compensated - How cautious the administrator wants to be - Whether the settlement clearly falls into taxable vs non-taxable categories Your $120 settlement without a 1099 was probably either under their reporting threshold or clearly determined to be non-taxable from the start. The one with the blank 1099 sounds like they were being extra cautious but didn't have specific tax guidance to include. Bottom line: if you don't get a 1099, you generally don't need to report it. If you do get one with a note saying it's not taxable, keep the documentation and follow their guidance. The settlement administrators usually have tax attorneys making these determinations, so their guidance is typically reliable.