I just settled out of court. Are civil settlements around $130,000 taxable? If so, how much will IRS take?

Question

I need the aid of an accountant or business lawyer for my question please. One who is knowledgable in Florida State law would be helpful. Thank you.

Answer 1

You really need to talk to a CPA. What kind of settlement is it? is it for punitive damages? Certain settlements are considered to be money in lui of wages or income you have lost so it is taxable. At that amount, it is going to shoot you in a high tax bracket depending on your marital status. You also need to think about any state taxes that are applicable. Is this income just in Florida or might there be another state involved. Since Florida is nontaxable. I would just make sure. As far as how much they can take, I would say it could be even a 3rd depending on your situation or it could be more or less.

Answer 2

This matter is complicated and you should talk with a CPA or Enrolled Agent (EA) about the funds you won in the suit, not an Attorney. CPAs and EAs are tax experts. You can find a CPA at www.aicpa.org and an EA at www.naea.org. Economic damages are taxable, but most non-economic damages are not. Example: you win $50,000 for lost wages and $100,000 for pain and suffering. The $50K in lost wages would be taxable. The pain and suffering would not be. Punitive damages may be taxable also. It is very important you do not spend all of the money now. You may need to make an Estimated Tax Payment for 2006. Failure to make Estimated Tax Payments if you are liable may result in a IRS penalty.

Answer 3

The portion that is punitive damages is taxable, personal injury i.e. damages are not taxable.

Answer 4

Just contact www.internalrevenueservice.com THE IRS you can't GO wroug they would let you know just what to do, If anything. This would be the inexpensive way to go

Answer 5

a certain portion is non taxable