Lawsuit settlement

B1003 · ‎November 16, 2022

I received a settlement from a malpractice lawsuit. Will I owe taxes on it?

R-SchuleCPA · ‎November 16, 2022

According to the IRS, payments for medical malpractice are classified as “personal physical injuries” settlements or compensatory damages. The portion of your award that compensates you or reimburses you for medical expenses and losses you suffered from the injury or sickness is non-taxable.

However, Punitive damages are taxable and should be reported as “Other Income” on line 8z of Form 1040, Schedule 1, even if the punitive damages were received in a settlement for personal physical injuries or physical sickness.

Long answer - short. Please review to litigation settlement and award paperwork.

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