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I am a non-resident alien having lived in the USA in 2015-2021. I just found out I'd received a class action settlement for almost $400 back in May 2022. (The funds were deposited into my PayPal account, but somehow I never got a notification.) In case it matters, the settlement is for Facebook biometric information privacy litigation.

After doing some research I found out that this income is taxable (as the settlement is not connected to a personal injury etc.) As a nonresident, I don't get the standard deduction, and do not qualify for any other deductions. All of this means I have to file a US tax return for 2022, owe a non-negligible amount, and am about 1.5 months late. My intent is to fill out the forms myself (there is no way I'm paying $50 for tax prep for this) and file them ASAP.

I'm particularly concerned with three questions:

  • How exactly do I report this? I did not receive any tax forms for this income. I've checked the various schedules attached to the form 1040-NR. There is no dedicated line for lawsuit settlements, so it seems to belong under "other income" either on Schedule 1 ("Additional Income and Adjustments to Income") or on Schedule NEC ("Tax on Income Not Effectively Connected With a U.S. Trade or Business").

  • What do I do with state taxes? I was a resident of Illinois back when I filed the claim form (and that was a condition of my eligibility for the settlement); but I haven't even been there since 2021, do not maintain a home there, etc. Do I still have to pay the state tax in Illinois or in some other state?

  • How do I deal with late filing/late payment penalties and interest? Is there a way to calculate the late penalty plus interest and just pay all of it right away, along with the tax? I do not have a US mailing address, so I'm going to list my foreign address on the forms. I am worried that the IRS will not be able to contact me; how would I calculate what I owe in this case?

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How exactly do I report this?

You're correct, this goes into the "other income" category. This would go to Schedule 1 of your 1040NR, line 8z.

Do I still have to pay the state tax in Illinois or in some other state?

No. While the income is sourced to the US, it was due a settlement in a Federal court, so it is not sourced to any State.

I am worried that the IRS will not be able to contact me; how would I calculate what I owe in this case?

You're not late yet. The deadline for filing the tax returns for people living outside the US is June 15th. You can also file form 4868 for an automatic extension to October 15th. See details on the IRS website here.

This income is likely taxable in your home country as well. So don't forget to calculate the foreign tax credit you can use to deduct from the US tax liability. It may so happen that you end up owing to the US nothing (in fact, most likely).

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  • Wait, do federal court settlements not count towards state income or capital gains taxation? Not even while you are living in one when this income was received?
    – AlanSTACK
    Jun 9 at 7:39
  • @AlanSTACK when you are a resident of a state then yes, they count.
    – littleadv
    Jun 9 at 16:35

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