@streetwolf wrote:
Since my official diagnosis of cancer in March of 2015 I haven't incurred any medical costs which I took a deduction for. No FSA, HSA, or MSA. The type of cancer I have is very slow growing and only requires a visit to my Hematologist/Oncologist every 4 months with payment of a low copay with my insurance. I haven't been able to meet the percentage of my income that allows me to take medical deductions in a very long time.
Do you really think it's physical and I won't have to pay taxes on what I receive based on what I presented?
https://www.irs.gov/pub/irs-pdf/p4345.pdf
You should consult your attorneys or read your settlement documents carefully, but I think that this will likely be non-taxable.
1. Cancer caused by the company's product is very definitely a physical illness or injury.
2. I very much doubt the company would agree to pay punitive damages because that would be admitting wrongdoing.
3. If your claim is based purely on your diagnosis, then it's for an illness or injury.
I can imagine where the settlement might have a scale, like $10,000 for exposed people with no cancer, $75,000 for proven cancer diagnosis, and $150,000 for died of cancer. In that case, the $10,000 for people who were exposed but not sick might be seen as being for emotional distress or pain and suffering, in which case it might be taxable. But you have a diagnosis. (Also important; compensation for pain and suffering is taxable if there was no original injury, but compensation for pain and suffering after an injury is not-taxable just like the injury compensation is non-taxable, so the fact that you have a diagnosis means the settlement should be non-taxable to you even if part of it is for fear, anxiety, uncertainty, etc.)
I can also imagine where the settlement might be something like $50,000 for a cancer diagnosis, plus $25,000 for every year of lost wages, and you submitted proof that your cancer caused you to lose work, to get the higher payout. In that case, the lost wages portion would be taxable (and should be reported by the payor on a w-2).
Without all the facts, no can tell you with 100% certainty. Hopefully these principles will help you ask the right questions of your attorneys or find the right answers in the documentation.
