I received a check on a law suit settlement. Is it considered taxable income?

[SharonD007]

It depends. Legal settlements are often taxed. It depends on the type of settlement and would have been mentioned in your settlement agreement. Generally, physical injury settlements aren't taxable unless you deducted medical expenses from the injury on a previous tax return. Non-injury settlements are considered other taxable income. You should receive a Form 1099 if your settlement is taxable. You will be taxed on the income based on the tax bracket that you fall in and the federal income tax rates. 

Please see the TurboTax article Are legal settlements taxable? for more information.

If you receive a form 1099-MISC, follow the instructions in the TurboTax article Where do I enter a 1099-MISC? 

[Nitin1102]

Dear Sir/Madam,  I received a check for the law suit settlement but I have not received any 1099 form.. Should this be reported as a taxable income? How can I get a 1099 form? I would appreciate your advice.

[MonikaK1]

It depends on the type of settlement proceeds you received and what they represented. If you received punitive damages, this would be taxable income, and often a Form 1099 would be issued. The taxable amount would be entered in the Other Common Income section or Less Common Income, Miscellaneous Income, regardless of whether a 1099 was issued. When you get to the screen that asks, "Does one of these uncommon situations apply?", check the "lawsuit settlement" box.

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. 

Settlements to reimburse you for personal physical injuries or sickness are normally not taxable unless you previously deducted the related medical expenses.

Information returns for lawsuit settlements that include both back wages and other damages typically consist of both a Form W-2 for the back wages, often showing taxes withheld, and a Form 1099 for the rest of the distribution.

Please see IRS Publication 4345 for more information.

@Nitin1102 

[Nitin1102]

Thank you so much for your prompt reply!  I have not received the 1099 form. How can I request one? Also the settlement is more for fraudlent activities and misleading investors and there is no physical injury. Based on your feedback, this will be taxable.

[Nitin1102]

Thank you so much for your prompt reply!  I have not received the 1099 form. How can I request one? Also the settlement is more for fraudlent activities and misleading investors and there is no physical injury. Based on your feedback, this will be taxable.

[MonikaK1]

You're welcome!

You could approach the payer to ask for a Form 1099, or ask your attorney to do so if you were represented.

You might also check to see if the IRS received a form from them indicating that one was sent to you, even though you didn't receive it. See this IRS webpage for more information. The type of transcript you would be looking for is an information return transcript.

See also this IRS webpage for additional information about the tax implications of settlements and judgments.