Are settlement checks from an insurance company taxable?

[AlanT222 · Accepted solution]

It depends upon the type of settlement. The settlement type will be listed in your Final Settlement Agreement.

Physical injury or sickness settlements (dog bites, mesothelioma, etc.) 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, 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 discrimination and injury to reputation (libel, slander, or defamation).

Emotional distress and mental anguish settlements are taxable, but only on the amount above and beyond the un-deducted 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 (un-deducted) medical expenses related to treatment.

Any interest earned on a settlement is taxable and should be entered as though you received Form 1099-INT.

[kristenleigh41]

The 1st check I got was for where they totaled out my car.

The 2nd check is a settlement check that was for pain/suffering plus lost wages. 

They are both from Progressive Insurance. I never got any forms to file my taxes with this information. I'm confused about both of them.

Progressive never paid any medical bills from my car wreck. It was sent for my health insurance company.

[VictorW9]

The check for compensation for your car is not taxable particularly if you are replacing or repairing the vehicle and no additional benefit is realized

The other check for lost wages and for pain and suffering is a little complicated. Based on the amount you are receiving, it is best you consult a tax professional as payments for future loss wages spanning more than one year can be tricky in figuring out what is taxable. 

[jg16]

I have exact same situation and also looking for advice. Will upgraded turbo tax with live chat and expert advice be able to help?

[ToddL99]

Unless you have a very unique situation, you do not need to upgrade TurboTax to get help with the subject "Are settlement checks from an insurance company taxable?"

As @AlanT222 stated so effectively: 

It depends upon the type of settlement. The settlement type will be listed in your Final Settlement Agreement.

Physical injury or sickness settlements (dog bites, mesothelioma, etc.) 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, 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 discrimination and injury to reputation (libel, slander, or defamation).

Emotional distress and mental anguish settlements are taxable, but only on the amount above and beyond the un-deducted 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 (un-deducted) medical expenses related to treatment.

Any interest earned on a settlement is taxable and should be entered as though you received Form 1099-INT.