Whether proceeds from a legal settlement are considered taxable income depends on what the payment represents. Taxable settlement proceeds are normally reported either on Form W-2 (for back wages) or Form 1099.
If the lawsuit was because, for example, insurance clients were overcharged for their insurance premiums, the settlement would not be taxable unless you previously deducted them as medical or business expenses.
If you received punitive damages on top of a refund of excess premium, this would be taxable income, and often a Form 1099 would be issued.
Property settlements for loss in value of property that are less than the adjusted basis of your property are not taxable and generally do not need to be reported on your tax return. However, you must reduce your basis in the property by the amount of the settlement. If the property settlement exceeds your adjusted basis in the property, the excess is income.
See IRS Publication 4345 for more information. See this help article for more information about entering taxable legal settlements in TurboTax.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
