Is the money from a settlement taxable?

Asked 4 months ago - Sacramento, CA

I wanted to know do I have to report income from a settlement and pay taxes on it?

Attorney answers (4)

  1. Bruce Givner

    Pro

    Contributor Level 18

    3

    Lawyers agree

    Answered . The issue of how a settlement is taxed is, unfortunately, complicated. If the proceeds are from an employment case, they are ordinary income. If the proceeds are from the loss of an asset, then they are capital gain. If the proceeds are from the loss of an arm, the proceeds are not taxable. So to advise you the lawyer must read the complaint, the response and the settlement agreement.

  2. Thomas J. Wagner

    Contributor Level 19

    4

    Lawyers agree

    Answered . If your talking about a settlement from a lawsuit or a legal claim, it is taxable unless it is from a suit or settlement "on account of personal physical injuries or physical sickness" You should consult with a tax attorney to get an opinion on whether your settlement or part of it qualifies for tax free treatment.

  3. Mark Eugene Barbour

    Pro

    Contributor Level 11

    3

    Lawyers agree

    Answered . It depends on what type of settlement it is and what kind of case. Consult with a tax attorney in your area. Impossible to say without more information.

    This response does not constitute legal advice and does not create an attorney-client relationship. Legal problems... more
  4. Amberly A Morgan

    Contributor Level 3

    Answered . As the other attorneys mentioned, the taxability of settlements is a complicated question. In general, if you receive a settlement for personal physical injuries or sickness, the full amount is non-taxable. However, if you deducted medical expenses related to the injury or sickness in prior years, then you must claim the settlement proceeds to the extent you received a tax benefit for those prior deductions. Settlements for loss of value in property may not be taxable, but will affect your capital gains taxes in the future and, therefore, must be properly accounted for. Settlement proceeds to compensate for business or employment related losses are generally taxable. In each situation, there are nuances to consider and you should seek the aid of a qualified attorney and CPA.

    This response does not create an attorney-client relationship, nor does it constitute legal advice, it is for... more

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