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  1. #1
    Join Date
    Sep 2005
    Location
    Behind a Desk
    Posts
    98,846

    Default Re: Taxable Income

    I expect so; but we don't know the specifics of your case or settlement. Read this.

  2. #2

    Default Re: Taxable Income

    The portion of the settlment attributed to lost wages is taxable as if it were W-2 income, the portion for medical expenses and suffering woudl not be taxable. You would have to figure out how to split that based on your employment.

  3. #3
    Join Date
    Mar 2008
    Posts
    176

    Question Re: When Are Settlements Taxable Income

    how would i determine that? based on what i have paid for medical expenses? i am so confused. originally i went after them for wrongful termination, violation of fmla and emotional distress. when we went in front of the federal judge, he indicated that he wanted this settled and did not want it to go to a possible jury trial. then my attorney had to re-write the suit and it indicated emotional distress and possible violation of FMLA. the way the settlement was set up was that i got a check and the former employer had to send a check to my attorney out of my settlement money. so i did not get the full amount in a check. then they sent me a 1099 and listed what i received in box 7. i called and fought with them and they changed it to box 3. so at this point it all depends on how i list it for income tax purposes. if i claim it, i owe the IRS money. if i dont, then i get money back on my taxes. i asked my attorney who could not answer my question if it is taxable. i asked the irs and they refer me back to the forms on their website. i asked a cpa and all i got is, i think you need to claim it.

    i am totally baffled and dont know what to do!

  4. #4
    Join Date
    Jul 2007
    Location
    Florida
    Posts
    2,344

    Default Re: When Are Settlements Taxable Income

    Mr. Knowitall provided you a link to a comprehensive discussion of this topic on the IRS website. If you are not able to read that information and make the correct determination then you need to consult a tax professional who is experienced in applying the IRS' rules to real world situations. If a CPA gave you a wimpy answer like the one you cited, then you need to consult another CPA. We don't have access to the settlement judgement language, so nobody here is going to be able to answer your specific question about your specific settlement.

    However, generally speaking, if the settlement proceeds were to compensate you for lost wages then the money is taxable because the wages would have been taxable. If the settlement proceeds were awarded to punish the company for wrongful behavior they would also be taxable. If they were to pay your medical bills or to otherwise make you whole from a financial loss (i.e. compensate you for actual damages) then generally the proceeds would not be taxable. If it's a little of both (according to the settlement judgement issued by the court) then some might be taxable and some might not.

  5. #5
    Join Date
    Feb 2010
    Location
    CT & IL
    Posts
    5,273

    Default Re: When Are Settlements Taxable Income

    The government used to say that only EARNED income is taxable ... its no longer practiced that way...not for a long time.

    When in doubt claim it & then re-file an amended return. See a CPA who knows about lawsuit settlements (you won't find one at H&R Block).

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