How much should I set aside for taxes on my legal settlement?

Question

I recently was awarded a legal settlement of $55,000. The party paying the money is planning to pay it out on a 1099, labeled as "emotional distress" damages. I don't know much about this, except that it will ultimately reduce the amount of taxes that are taken out. The problem is that because they are handing me a lump sum check with the 1099, they are not taking the taxes out in advance. Does anyone know how much of this I should set aside for my taxes next year?

Answer 1

Whether you have to pay tax on the court award or legal settlement depends on what it is for.
After August 20, 1996 a legal settlement or court award received is only tax free if on account of physical injury or physical sickness. Include the following as ordinary taxable income on your tax return:

Interest on any legal settlement or court award;
Compensation for lost wages or lost profits in most cases;
Punitive damages;
Amounts received in a legal settlement or court award of pension rights
(if you did not contribute to the plan);
Damages for:
Patent or copyright infringement;
Breach of contract;
Interference with business operations;
Any legal settlement or court award under the Age Discrimination in Employment Act.

Do not include in your taxable income on your tax return a legal settlement or court award for compensatory damages for personal physical injury or physical sickness.

Emotional distress is not considered a physical injury or sickness; therefore, a legal settlement or court award for emotional distress is includable in taxable income on your tax return. However, a legal settlement or court award up to the amount paid for medical care expenses attributable to emotional distress are tax free and do not need to be included on your tax return.


Obviously if it says "emotional distress" -- it's taxable. I would say that if you set aside 20% you should be safe. However, I'm just basing that on the percentage that is taken from anything that I retrieve from an IRA. (Then I get nailed another 20% at the time I file). Ask a tax advisor - go to google or yahoo and search for one.

Answer 2

Put 1/3 aside; your tax will probably not be much over 1/4 of the settlement. But alot depends on how much you made other than the settlement and what else you have for deductions. You should also consult a tax advisor because the government in sonme cases makes you pay a penaty if you owe a large amount of tax at the end of the year.

Answer 3

you in all probability do no longer could set aside something if Social risk-free practices taxes and state earnings taxes are being withheld. what is going to possibly take place is that your refund would be decreased between $six hundred and $one thousand from final 365 days. in case you think of which you will owe greater desirable than $one thousand this 365 days by way of area time activity, then document a clean W-4 and request that they withhold between $30 and $50 a week out of your paychecks for something of the 365 days.

Answer 4

Tax advisers can work in compliance, ensuring a client meets all tax obligations by preparing and submitting tax returns, tax computations and any other necessary forms. Alternatively, they may work in consultancy, advising clients on how to minimize their tax liabilities. The work of a tax adviser depends on the nature and size of the employer. Larger accountancy firms, for example, tend to adopt a structure that permits greater specialization, whereas in smaller companies the work may be more varied.

Answer 5

I paid the full 1/4 of my settlement to the tax office. Unfortunately I did not know this page at the time that would have me saved a lot of money :(.

http://settlementwiki.org/save-tax

Good luck with your research on this!

Ray