stephanieg912
New Member

If I won a lemon law settlement for $90,000, but only received $55,000 from it. How do I report this on my taxes for 2018 and how much am I looking to pay back?

Should I expect to pay taxes on a lemon law settlement? If so, what percent? Also, will I have to report the entire amount or only what I received (which was 55/ lawyers received 45)

Carl
Level 15

Retirement tax questions

It's impossible to give you even a wild guess on this, since it's know known exactly what the settlement was for and what portion of it, if any, was a refund. But you can expect the payer of the settlement to send you some type of tax reporting document at tax time, and you'll deal with it then. Most likely it will be reported to you on a 1099-MISC in box 3 of that form.
Critter
Level 15

Retirement tax questions

Are legal settlements taxable?

They often are, but that depends upon the type of settlement, which is listed on the Final Settlement Agreement.

Physical injury or sickness settlements (for example, awards related to animal bites) are non-taxable and don't need to be reported unless you deducted medical expenses related to the injury on a previous tax return and you received a tax benefit from the deduction. In that case, you'd report the medical expenses related to the incident as miscellaneous (other) income.

Punitive damages are taxable except in certain wrongful death cases, as are awards for employment discriminationand injury to reputation (libel, slander, defamation, etc.).

Emotional distress and mental anguish settlements are taxable, but only on the amount above and beyond the undeducted medical costs for treatment of the distress or anguish. You'll need to paper-file your return so you can attach a statement that shows the settlement amount minus the (undeducted) medical expenses related to treatment.

Interest earned on settlements is taxable and should be entered as you would a Form 1099-INT.