I am a plaintiff in a class action lawsuit against a large utility company. The courts have recently ruled against the utility company and all plaintiffs will be receiving settlement checks. The settlement will separate the proceeds between Personal Injury and Economic Injury. My understanding is that Personal Injury awards are not taxable…but that Economic Injury awards are. Is this true? Do I need to report the proceeds of this settlement check on my personal tax return and if so, where? Thank you.
Hello @Dave991 :
Settlement checks are usually attached to a 1099-misc or whatever the court system determines as the type of income. The document attached is what you need to file your tax return. So, be careful to hold on to the check and the tax return documents that come with the settlement check.
Yes, personal injury awards are not taxable. This is also confirmed by looking to see if any tax documents are sent with the check.
Thank you!
Hi Dave 991,
Yes, you are correct that, in general, proceeds received for physical injuries or physical illness are tax free; Other awards are taxable.
You should receive a Form 1099-Misc reporting any taxable amount for tax year 2022. When entering 1099 Misc into TurboTax, if you answer entry questions correctly "The money was from a lawsuit settlement", "It was not back wages, the amount will flow to "Other Income."
Hope the above helps.