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What are the tax implications on an auto insurance settlement due to medical bills and pain and suffering?

 
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Level 2

What are the tax implications on an auto insurance settlement due to medical bills and pain and suffering?

In general, any settlement you received for personal or physical injury or sickness is NOT taxable.  

Most other [legal] settlements, such as for back pay and punitive damages, are taxable.  

In the case of property (like your car) , if the settlement merely restores your original value, it’s not taxable, but if it enriches you beyond where you were before, it is taxable. 


If you received a 1099 miscl for this lawsuit settlement

This is how you should enter it: 

  1. Open (continue) your return in TurboTax if you don't already have it open.
  2. In your program, search for 1099-MISC (upper- or lower-case, with or without the dash) and then click the "Jump to" link in the search results.
  3. Answer Yes to the question Did you get a 1099-MISC? (even if you didn't get one).
  4. Complete the top part and then enter the award amount or previously-deducted medical expenses in Box 3 Other Income.
  5. Fill out any other boxes from your paper 1099-MISC (if you have one), then click Continue.
  6. Select This was money from a lawsuit settlement on the Does one of these uncommon situations apply? screen and then answer the back wages question before clicking Continue.

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2 Replies
Highlighted
Level 2

What are the tax implications on an auto insurance settlement due to medical bills and pain and suffering?

In general, any settlement you received for personal or physical injury or sickness is NOT taxable.  

Most other [legal] settlements, such as for back pay and punitive damages, are taxable.  

In the case of property (like your car) , if the settlement merely restores your original value, it’s not taxable, but if it enriches you beyond where you were before, it is taxable. 


If you received a 1099 miscl for this lawsuit settlement

This is how you should enter it: 

  1. Open (continue) your return in TurboTax if you don't already have it open.
  2. In your program, search for 1099-MISC (upper- or lower-case, with or without the dash) and then click the "Jump to" link in the search results.
  3. Answer Yes to the question Did you get a 1099-MISC? (even if you didn't get one).
  4. Complete the top part and then enter the award amount or previously-deducted medical expenses in Box 3 Other Income.
  5. Fill out any other boxes from your paper 1099-MISC (if you have one), then click Continue.
  6. Select This was money from a lawsuit settlement on the Does one of these uncommon situations apply? screen and then answer the back wages question before clicking Continue.

View solution in original post

Level 7

What are the tax implications on an auto insurance settlement due to medical bills and pain and suffering?

But the part of the settlement for medical bills is taxable to the extent that you deducted those bills in prior years.