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  1. #1
    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.

  2. #2
    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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