Personal Injury (Addiction Injury) JUUL Settlement - taxable?

[souzem]

My son is a student and goes to college at WA. He was part of a Class Action Personal Injury Lawsuit against JUUL and won a settlement of $52K, and after deduction for expenses and attorney fees he was given a cheque of $29K. We did NOT receive any 1099 form from JUUL or the law firm for this. This is specifically considered “ADDICTION” injury. 

1. Would this personal injury settlement which is “ADDICTION” injury, be considered taxable?

2. Additionally, in case this is taxable, what is considered as taxable income - $52K or $29K?

[MonikaK1]

Whether and how much of the amount of a legal settlement is taxable depends on the type of settlement proceeds you received and what they represented. 

Check the terms of the legal settlement. If you received any punitive damages, this would be taxable income. 

If you receive a settlement for personal physical injuries or physical sickness and did not take an itemized deduction for medical expenses related to the injury or sickness in prior years, the full amount is non-taxable. Do not include the settlement proceeds in your income.

Property settlements that compensate for a loss in value of your 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 this help article for instructions for entering a legal settlement in TurboTax.

See IRS Publication 4345 for more information about legal settlements.

The full amount of any taxable settlement would be reported as taxable income Legal fees related to personal issues typically can't be included in your itemized deductions under current law or deducted from taxable settlements. See this tax tips article for more information.

[souzem]

Thanks for your detailed response! It is helpful.

The ambiguity is whether Addiction injury is considered a physical injury or not, and what other JUUL settlement claimants have done. Searching the internet hasn't been helpful at all.

[BrittanyS]

How is the settlement listed in your legal documents?  Do the records show the settlement as punitive damages or physical injury?  The IRS will base its decision on how your legal documents are written.  

[souzem]

Thanks for your response. All we have is the Point Allocation for the JUUL Personal Injury Settlement, and his entire award is based only on Addiction Injury claim. There is no other legal document that we have unfortunately and neither have the law firm been helpful towards our queries.

[ThomasM125]

Per this except from IRS publication 529, you can't deduct legal fees that are associated with personal injury cases, so the $52,000 would be the taxable amount, if you decide it is taxable:

You may find this IRS article helpful in determining if the award is taxable based on the nature if the injury.