I received a lawsuit settlement from my mortgage lender company for a payment issue. I got a check through my lawyer but did not receive any 1099’s do I still claim

[AndrewSHinerman]

Do I claim this as income if so where. Do I claim federal and state (Pennsylvania) or just federal- what’s forms

[bluedeb · Accepted solution]

The general rule is that lawsuit settlements are taxable, except in cases that involve an actual, physical injury (“observable bodily harm”) or illness that you suffered. In other words: personal injury settlements usually aren't taxable, while other types of settlements usually are.

Where do I enter an award from a taxable legal settlement?

https://ttlc.intuit.com/turbotax-support/en-us/help-article/import-export-data-files/enter-award-tax...

Refer to Pennsylvania Taxation of Fringe Benefits. Delay damages received in connection with a court judgment or settlement is taxable compensation. Federal-taxable punitive damages received for personal physical injury or physical sickness, whether received by suit or by settlement is not taxable compensation.

https://www.revenue.pa.gov/FormsandPublications/PAPersonalIncomeTaxGuide/Pages/Gross-Compensation.as...

[AndrewSHinerman]

This is an awesome response! One last question: the settlement was paid to the lawyer who then cut a check to me (minus his fees). Do I count the entire income or just what I received? I would assume he would have to pay tax on th amount he got from my settlement, right?

[bluedeb]

You would have to enter the whole amount, you can only deduct lawyer fees if it was for a physicals injury or sickness.

Awards from legal settlements and cases

If you were awarded money from a legal settlement or case, it's likely that the award amount will be taxable and should be included in your gross income reported to the IRS. Generally, the only exception is if the money was awarded to you as a result of a lawsuit for physical injury or sickness. But even then, there are other rules and exemptions that may apply, as outlined by the IRS. In most instances, the attorney fees from these cases can't be deducted from your taxes.

Record-keeping tips to make taxes easier

Make sure your attorney's invoices clearly identify the nature of the services provided. If the invoice your attorney provides to you doesn't specify the type of legal advice or counsel, ask the attorney to amend it to include all of the necessary information. That way, you're able to accurately substantiate legal fees that you deduct on your taxes. You can also make the process a lot easier if you ask for any bills that list charges for both deductible and nondeductible services to be separated.

The IRS has information on Settlements etc.

Tax Implications of Settlements and Judgments

https://www.irs.gov/government-entities/tax-implications-of-settlements-and-judgments#:~:text=The%20....

[bluedeb]

To add:  The following is information on how to enter your settlement into TurboTax:

Where do I enter an award from a taxable legal settlement?

Interest earned on settlements is taxable income and should be entered as a Form 1099-INT.

If you received a 1099-MISC:

1. Sign in to TurboTax and open or continue your return
2. Search for 1099-misc and select the Jump to link
3. If you're asked Did you get a 1099-MISC?, answer Yes
   1. If you've already entered a 1099-MISC, select Add Another 1099-MISC
4. Enter the information from your 1099-MISC and select Continue
5. On the Describe the reason for this 1099-MISC screen,
   enter lawsuit settlement and select Continue
6. On the Does one of these uncommon situations apply? screen, select This was money from a lawsuit settlement and then answer the back wages question before selecting Continue

If you didn’t receive a 1099-MISC, follow these steps to report the income:

1. Sign in to TurboTax and open or continue your return
2. Search for lawsuit settlement and select the Jump to link
3. Answer Yes to the question Any Other Taxable Income?
   1. If you've already entered miscellaneous income, select Add Another Miscellaneous Income Item
4. Enter a brief description and the amount you received and select Continue