Deductions & credits

Some of your legal settlement may be taxable and some of it may not.   Your question is fairly complex in that it relates to your lawsuit and probably requires an analysis of all of the facts and circumstances related to that lawsuit.  Accordingly, much of what you ask about is beyond the scope of the type of advice we can provide.  However, we can provide some general background information for you so that you can raise these issues with your tax advisor. 

Generally, awards and settlements can be divided into two distinct groups to determine whether the payments are taxable or non-taxable. The first group includes claims relating to physical injuries, and the second group is for claims relating to non-physical injuries. Within these two groups, the claims usually fall into three categories:

1. Actual damages resulting from physical or non-physical injury;
    
2. Emotional distress damages arising from the actual physical or non-physical injury; and
    
3. Punitive damages

Damages received for non-physical injury such as emotional distress, defamation and humiliation, although generally includable in gross income, are not subject to Federal employment taxes.  Federal employment taxes are social security and medicare taxes.  

Emotional distress recovery must be on account of (attributed to) personal physical injuries or sickness in order for it not to be subject to tax.   However, if the emotional distress recovery is for reimbursement of actual medical expenses related to emotional distress that was not previously deducted, then such amount is not taxable.   You mentioned that some of the money you received was for reimbursement of medical expenses so that amount may not be taxable. 

There is a section of TurboTax concerning legal settlements.  In the Federal section, under Wages & Income, scroll down to the bottom of the page where you will find Miscellaneous Income.  At the bottom of that section, select Other Income and answer the questions in the pages that follow.  However, before you take this step, you might want to discuss the matter with your tax advisor to get a better understanding of what amounts of your legal settlement are taxable.

@Julia813