Q. (cont.) The student was injured during a golf cart accident while volunteering for event. Student signed a settlement agreement and release form. Amount of settlement is supported by insurance paperwork containing the amount insurance did not cover. The payment amount to student is amount of medical bills not covered by insurance. Is this payment 1099-reportable to the student? It is over $600.
A. I spoke with IRS information agent Ms. Sutton (ID# 1002213914). She referred me to the 2017 Instructions for Form 1099-MISC (https://www.irs.gov/pub/irs-pdf/i1099msc.pdf). It's stated on page 6, paragraph number 5, that you should NOT report compensatory damages "received on account of personal physical injuries or physical sickness."
If the payment had been punitive, that is, it was money paid as a punishment that was greater than the actual cost of physical treatment, then you would have to report it. But since that does not appear to be the case, and you are merely compensating the student for the actual portion of the medical treatment not covered by insurance--in other words, it represented "compensatory" damages--then you do not need to report this payment on a 1099-MISC.