Do I have to pay taxes for money earned from a legal settlement?

Question

If one is awarded money as a result of a legal settlement, do I need to pay federal (and/or state taxes) on the money earned from such a settlement? The settlement was a result of a grievance filed for employment discrimination and wrongful termination.

Answer 1

Yes it is taxable and reportable, but you may be able to take a reduction on you adjusted gross income for legal fees paid for a discrimination suit
Deduction for Discrimination Suit Costs — A new deduction is available for those who pay attorney’s fees and court costs in connection with discrimination suits. Taxpayers can take the new deduction whether they itemize or not. The deduction cannot exceed the amount includible in income for the year on account of a judgment or settlement resulting from the discrimination claim. Generally, personal legal expenses are not deductible, but an employee who incurs legal expenses related to doing or keeping his job could deduct these expenses on Schedule A as a miscellaneous itemized deduction. However, under The American Jobs Creation Act of 2004, an individual with legal fees and court costs arising from a discrimination suit may deduct the costs directly from income on the front of the tax return; this is known as an above-the-line deduction.

Under this new deduction, amounts paid for attorney’s fees and court costs are deductible in computing alternative minimum tax, and are not subject to the 2 percent floor on miscellaneous itemized deductions or the overall limitation on itemized deductions. The Act, signed into law on Oct. 22, 2004, describes the discrimination claims qualifying for this new deduction. Only costs paid after Oct. 22, 2004, for judgments or settlements occurring after that date qualify for this deduction.

Call the Internal Revenue Service at 1-800-829-1040
for assistance in where to report this and claim the adjustment on your tax return

Answer 2

2

Answer 3

Dai--the term ''commercial'' to a westerner (or Italian) suggests factory space. An apartment , or living space would not be --commercial--but --residential. Anyway Dai, he is using you pure and simple , from what you say that is! You as the owner have stated you made a verbal agreement and even in the Phils corrupt system that will be all you need. GO TO THE POLICE NOW. Not the Barrio cops, go to Police Nacionale,make a written complaint and demand his eviction. This guy probably thinks he has you scared of him as he is a foreigner--dont be as he probably has his own troubles. He will NOT want Police attention--he probably does not have the correct visa /or is in breach of the one he does have--most foreigners living in the Phils overstay.(Ones like him with no evidence of money that is to say) Any foreigner in the Phils who complains about 320 pesos for an electric bill is one of two things--the meanest and tightest person on the planet--or--got no money! Do not be afraid of this guy--he is no-one and you are the Filipino, its your country , not his and I think you would have a lot more relatives there than he has to help you. Foreigners who carry on like this are no good, he probably has nothing to back him up but a bad attitude--so I say again, GO TO THE POLICE NOW. Fools like this you do not need.

Answer 4

Maybe. If the settlement is for an injury or illness, it's tax free.

Any portion attributable to lost wages, punitive damages, or accrued interest is fully taxable.

If the settlement is for something other than an injury or illness, it's fully taxable in most cases.

Answer 5

Settlements are considered income, so yes, unless it's personal injury.

More info:
http://www.irs.gov/businesses/page/0,,id%3D7050,00.html#Chap2

Answer 6

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