My boyfriend received a settlement after he sued a company he worked for. The reason he sued was because they didn't pay him for nearly 3 months after he worked for them (he is an independant contractor). Is this money taxable by the IRS?
He called the Labor Board and they said no. Our tax prep guy says yes. Who's right?
2007-03-15 12:16:14 · 2 answers · asked by tomato 3 in Business & Finance ➔ Taxes ➔ United States
Compensatory damages - NO (they are to compensate you for lost $$$)
Punitive damages - YES (to punish the offending party)
The type should be laid out in the settlement.
2007-03-15 12:22:54 · answer #1 · answered by Z28_Zeppelin 2 · 1⤊ 0⤋
The money would have been taxable if the man had paid him on time, it is taxable when he gets it as the results of a lawsuit.
Generally, the other answer you got regarding compensatory damages not being taxable is true, but because the settlement is for earnings that would have been taxable the settlement is taxable, it is just earnings paid under duress, earnings are taxable.
2007-03-15 14:45:03 · answer #2 · answered by irongrama 6 · 1⤊ 0⤋