JulieS
Expert Alumni

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Whether or not this amount is taxable depends on a number of factors, but the primary one is, What is the compensation meant to replace?

 

Some cases are very clear, such as a lawsuit to get back wages. That is taxable because the proceeds are meant to replace wages, which are taxable. 

 

In general, class action lawsuits are meant to replace a value you did not receive, or return an amount that you were overcharged. 

 

The IRS codes actually state that lawsuit proceeds are taxable unless there is a specific exception based on the facts and circumstances. 

 

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