Get your taxes done using TurboTax

What your settlement was for determines whether it is taxable or not. In general, settlement money for direct physical injuries or sickness in a medical malpractice suit is not taxable. However, any part of your settlement money that was for lost income or punitive damages is subject to taxes.

When entering you r Form 1099-MISC, you can:

1. Click on the Search icon at the top right of your screen.
2. Type "1099-MISC" in the search box
3. Click on "jump to 1099-misc"
4. You will see "Let's get the info from your 1099-MISC"
5. Enter the info from your 1099-MISC and "Continue"
6. Enter a description for your 1099-MISC such as "Legal Settlement"
7. On the screen "Does one of these uncommon situations apply? make sure to check the box for "This money was from a legal settlement" and
8. "Was any part of the lawsuit for back wages" select "No"

1. Answer the follow-up questions.

Punitive damages are damages  that exceed regular compensation and are awarded to punish the defendant.

Punitive damages are taxable even if they were received for settlement of personal injury or physical sickness and should be reported as “Other Income”. 

You can review your court settlement papers and your original complaint, or talk to your attorney to determine if any of your settlement was for lost income and wages or punitive damages.

Click here for "Are legal settlements taxable?"

Click here for additional information on Tax Implications of Settlements.

Click here for more information on the taxability of settlements.