Are settlements from lawsuits taxable?
Answer:
It depends on the lawsuit.
For recovery of a loss, it is not taxable unless you already took a tax deduction for the loss. Then it would be taxable. This includes insurance settlements on car accidents and burning down a home.
Lawsuits as a result of physical injury, are exempt. Pain and suffering from a physical injury are usually exempt.
Lawsuits for lost wages as a result of improper employment termination are taxable. Sexual Harrassment lawsuits are taxable. Pain and suffering as a result of non-physical injuries are usually taxable, such as defamation of character suits.
Further, in a mixed lawsuit, you may have a mixed result.
Generally, pain and suffering or to replace property, no.
For lost wages, yes.
If you are just getting payment for your injuries then no. If they are paying you for lost wages then I believe you'll have to claim that portion of your settlement as additional income at the end of the year. You may want to ask your attorney how that works.
It depends on what the settlement is. For recovered expenses; no; for gain over outlay; yes.
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