I have a different view. The settlement is not taxable unless it is more than your loss. If you got the CPAP for free from your medical insurance company, then the settlement is taxable. Or if the total payments are more than your co-pays were. And if you bought the CPAP yourself, but with tax-free funds like from an FSA or HSA, or took an itemized tax deduction for medical expenses on schedule A, then you may have a taxable recovery. That's why they can't give you an exact answer.
More specifically, you probably already received the payment that Phillips voluntarily made, although I forget how much that was. And you might have gotten your CPAP for free or for co-pays, or you paid full price. You need to look at the total picture, add everything up, and go from there.
For example, I paid about $800 for my DS1 before insurance kicked in, and I used HSA funds to reimburse myself. Because I used tax-free money from the HSA, I have three options for the payment.
a. Declare it as taxable income (called a taxable recovery, or a reimbursement of previously tax-free item or tax deduction).
b. Re-deposit the money in the HSA (if they will accept it).
c. Use the money for medical expenses in the current year and not seek FSA or HSA reimbursement.
On the other hand, I also bought a DS Go out-of-pocket without using any tax-free benefit (no insurance coverage and no HSA or FSA). Any payments I get for the DS Go are tax free unless the total is more than the original cost.
Or as a third example, suppose you got your Philips CPAP for free via insurance, but you had to pay out of pocket for a replacement unit from a different manufacturer because insurance will over cover one CPAP every 5 or 10 years. Your loss is the cost of the new machine, so the reimbursement is not taxable even though the original machine was tax-free.
