It depends. If the settlement was paid by your former employer for wrongful discharge, lost wages, business income and benefits, it is considered earned income. Generally, any other type of settlement will not be considered as earned income. See Tax Implications of Settlements and Judgments for more information.
If the settlement is earned income, you may qualify for the earned income tax credit if you fall within the income threshold. See Earned Income and Earned Income Tax Credit (EITC) Tables for more information.
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