Are settlements by HR Block taxable?

Question

HR Block make a big mistake on our taxes last year, and just sent us a check for ~$12,000 as a settlement. It just occurred to us that this may be taxable income, and result in us getting a 1099 form next year that we'll have to pay tax on. HR Block is being less-than-helpful in answering this simple question. (They suggested we speak to someone knowledgable about taxes, which we found amusing.)

So, does anyone have experience with any sort of settlement from a large company, and whether or not it resulted in a 1099 the following January?

Answer 1

The only settlements that are exempt from tax are for physical injury or illness.

Your settlement is fully taxable. You should make an estimated tax payment using Form 1040ES by April 15, 2007 or you will be facing a possible penalty for underpayment of taxes when you file your 2007 tax return in 2008.

Answer 2

Bostonian is answering for a settlement of a law suite. You don't give enough facts in your question to answer it properly. There are situations where a payment by Block is not taxable.
I would strongly suggest that you contact a good CPA for future tax preparation and to get a definitive answer to your questions.
Good Luck!

Answer 3

This is TAXABLE income to you. Yes indeed. And find a good tax preparer!

--A Darn Good Tax Advisor