Mixed Tax Results for Taxpayer on Legal Settlement

The tax rules for legal awards and settlements: What recipients should know

If you’ve recently received a settlement or award from a lawsuit, or you’re expecting one, you may be wondering how the IRS views this money. Will you need to pay taxes on it? The short answer: It depends on the type of damages you received. Understanding the basic rules can help you avoid surprises. Taxable vs. nontaxable awards Not all lawsuit settlements or awards are treated the same under federal tax law. Generally, the IRS breaks them into…

Mixed Tax Results for Taxpayer on Legal Settlement

Although damages paid due to physical injuries are tax-exempt, other payments for non-physical injuries are generally subject to tax. In this case, a man who claimed he was injured while he was incarcerated walked away with a split decision.