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paigeg22
New Member

Do I need to file? I have about a $8,000.00 income for last year, but I also received a $57,000.00 settlement for which I have not yet paid taxes.

The settlement was for medical expenses and pain and suffering after an auto-accident in which I was a victim.
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Coleen3
Intuit Alumni

Do I need to file? I have about a $8,000.00 income for last year, but I also received a $57,000.00 settlement for which I have not yet paid taxes.

Probably not.

1) It depends on your facts and circumstances. If your lawsuit was for “personal physical injuries or physical sickness,” then generally the settlement proceeds are not included in your income. An exception applies when some of the proceeds are paid to reimburse you for medical expenses that you deducted on your tax return. If the proceeds were not for personal injuries, then some of it may be taxable to you.

https://www.bankrate.com/finance/taxes/is-settlement-proceed-taxable.aspx

 

2)"Physical" is still the pivotal word when it comes to damages for emotional issues. If your pain and suffering is the result of injury or illness that gave rise to your lawsuit, the damages aren’t taxable. If your lawsuit relates to something other than personal injury, such as discrimination, defamation or an employment issue, the IRS will tax you on the money at the percentage rate determined by the tax bracket you fall into when adding in your other income. You’ll also have to pay Social Security and Medicare taxes on the damages. If you’re negotiating a settlement with the party you’ve sued, talk to your lawyer before you sign an agreement if your case involves both physical and nonphysical claims. You’ll want to make sure that if your pain and suffering is related to physical injuries or illness, this is clearly stated.

https://pocketsense.com/tax-implications-pain-suffering-settlements-11404881.html 

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1 Reply
Coleen3
Intuit Alumni

Do I need to file? I have about a $8,000.00 income for last year, but I also received a $57,000.00 settlement for which I have not yet paid taxes.

Probably not.

1) It depends on your facts and circumstances. If your lawsuit was for “personal physical injuries or physical sickness,” then generally the settlement proceeds are not included in your income. An exception applies when some of the proceeds are paid to reimburse you for medical expenses that you deducted on your tax return. If the proceeds were not for personal injuries, then some of it may be taxable to you.

https://www.bankrate.com/finance/taxes/is-settlement-proceed-taxable.aspx

 

2)"Physical" is still the pivotal word when it comes to damages for emotional issues. If your pain and suffering is the result of injury or illness that gave rise to your lawsuit, the damages aren’t taxable. If your lawsuit relates to something other than personal injury, such as discrimination, defamation or an employment issue, the IRS will tax you on the money at the percentage rate determined by the tax bracket you fall into when adding in your other income. You’ll also have to pay Social Security and Medicare taxes on the damages. If you’re negotiating a settlement with the party you’ve sued, talk to your lawyer before you sign an agreement if your case involves both physical and nonphysical claims. You’ll want to make sure that if your pain and suffering is related to physical injuries or illness, this is clearly stated.

https://pocketsense.com/tax-implications-pain-suffering-settlements-11404881.html 

View solution in original post

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