Law Suit Settlement

Forum|Forum|3 years ago
November 16, 2022
1 reply
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If I receive a legal settlement for a personal injury suit, are the proceeds taxable as income for either/or Federal or state (Massachusetts).
Thanks.

Anonymous

Settlements are taxed or not according to the type of income they represent. For example, a settlement for unpaid wages is taxed like wages. Settlements for physical injury are not taxed. Settlements for emotional distress are not taxed if the emotional distress was related to a physical injury, but are taxed if the injury was purely emotional. Punitive damages and interest are taxable. A settlement for physical damages to property is taxable if it exceeds your original cost to purchase the property.

Settlements for physical injury are not taxed.

This IRS FAQ provides a good overview of this issue.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/legal-issues/legal-settlements-taxable/L3nHlAmXd_US_en_US