I won an arbitration with Chase, my lawyer worked on contingency - how does the tax work?

[carlhua]

I won an arbitration with Chase, lawyer worked on contingency of 45%.

If I won 5000 -

1. Do I need to pay tax?

2. Do I pay tax on 5000, or 2750 since my lawyer took 45%?

Thank you

[AlanT222]

It depend on what the settlement was for.  If the settlement was for an injury or damages you do not have to pay tax on any of the settlement.  If the settlement was for back wages, you only have to pay tax on the amount you received after attorney fees.  

Please see this FAQ for more information on legal settlements.