In general, any settlement you received for personal or physical injury or sickness is NOT taxable.
Most other [legal] settlements, such as for back pay and punitive damages, are taxable.
In the case of property (like your car) , if the settlement merely restores your original value, it’s not taxable, but if it enriches you beyond where you were before, it is taxable.
This is how you should enter it:
- Open (continue) your return in TurboTax if you don't already have it open.
- In your program, search for 1099-MISC (upper- or lower-case, with or without the dash) and then click the "Jump to" link in the search results.
- Answer Yes to the question Did you get a 1099-MISC? (even if you didn't get one).
- Complete the top part and then enter the award amount or previously-deducted medical expenses in Box 3 Other Income.
- Fill out any other boxes from your paper 1099-MISC (if you have one), then click Continue.
- Select This was money from a lawsuit settlement on the Does one of these uncommon situations apply? screen and then answer the back wages question before clicking Continue.