I've seen a few questions about whether or not certain settlement checks where taxable, but I'm honestly not sure if any of them relate directly to my situation, so I apologize if this is a repeat question. I received a check as part of a class action settlement from State Farm. I tried reading the information on the web site they provided in regards to what the settlement was about, as well as the irs.gov page regarding settlements, but I'm still unclear as to if I need to claim this and if so how I would within TurboTax. And of course the only recourse the settlement fund information could provide is "it's your responsibility". Any assistance would be appreciated.
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What did the class action lawsuit proceeds replace; why did you get the $$? Tax Implications of Settlements
The general rule regarding taxability of amounts received from settlement of lawsuits and other legal remedies is Internal Revenue Code (IRC) Section 61. This section states all income is taxable from whatever source derived, unless exempted by another section of the code. IRC Section 104 provides an exclusion from taxable income with respect to lawsuits, settlements and awards. However, the facts and circumstances surrounding each settlement payment must be considered to determine the purpose for which the money was received because not all amounts received from a settlement are exempt from taxes. *****The key question to ask is: "What was the settlement (and its corresponding payments) intended to replace?"
Therein lies the problem. As I mentioned in my original post, at least to me it is unclear what the lawsuit was about. I feel like it has something to do with premium overpayments based on peoples' perceptions of the wording that described how rates were determined, but I'm not 100% sure. Let's suppose for the sake of argument I simply wanted to claim the check (it's not a huge amount and doesn't seem like it should swing the calculations much). Since I did not receive any sort of official tax form along with the check, where would I enter this information into TurboTax? I am using the Deluxe version of the software.
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