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From Opus 17:
Generally speaking, payments for personal injury or property damage are not taxable, but recoveries for punitive damages or lost wages/income are taxable.
There are a number of variations (like, if you deducted medical expenses in a prior year that are now paid off by the settlement, you have a report a reimbursement of a deduction, and that is taxable. Or, if you received money for your damaged car and the money is more than the car was worth, the excess is taxable). This link provided gives more examples. http://www.irs.gov/pub/irs-pdf/p4345.pdf
Your attorney costs are deductible, but only as far as the damages are taxable (if 50% of your damages are taxable, then 50% of your fees are deductible). And they are a miscellaneous deduction subject to the 2% rule, so you may or may not actually benefit from claiming the deduction.
In a perfect world, you would receive a 1099-Misc from the payer that only lists the taxable part (wages and such).
https://ttlc.intuit.com/questions/1901380-entering-an-award-from-a-legal-settlement-in-turbotax
@Critter-3 wrote:
Do I report a personal injury settlement? Maybe and it depends ...
From Opus 17:
Generally speaking, payments for personal injury or property damage are not taxable, but recoveries for punitive damages or lost wages/income are taxable.
There are a number of variations (like, if you deducted medical expenses in a prior year that are now paid off by the settlement, you have a report a reimbursement of a deduction, and that is taxable. Or, if you received money for your damaged car and the money is more than the car was worth, the excess is taxable). This link provided gives more examples. http://www.irs.gov/pub/irs-pdf/p4345.pdf
Your attorney costs are deductible, but only as far as the damages are taxable (if 50% of your damages are taxable, then 50% of your fees are deductible). And they are a miscellaneous deduction subject to the 2% rule, so you may or may not actually benefit from claiming the deduction.
In a perfect world, you would receive a 1099-Misc from the payer that only lists the taxable part (wages and such).
https://ttlc.intuit.com/questions/1901380-entering-an-award-from-a-legal-settlement-in-turbotax
Do I report money I moved from a 401 to an IRA ? A form 1099-R should be issued in January for the roll over and must be reported even if there is a code G in box 7.
That's an out of date answer quoted above, legal expenses are not deductible from settlement income for tax years 2018-2025.
A settlement for physical injury, including pain and suffering arising from physical injury, is not taxable. However, if you previously took a tax deduction for your medical expenses, or used a tax-free account such as an HSA to pay your medical expenses, you now have a taxable event called a taxable recovery, because you were reimbursed for a previous deduction.
Also, if part of the settlement is for punitive damages (punishment) or for interest, that portion would be taxable. Settlements for lost wages are taxable as wages. Settlements for pain and suffering that were not caused by physical injury are also taxable. Settlements for property damage are taxable if the settlement amount was more than the adjusted cost basis of the property.
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