If you are awarded money from a law suit is it tax free? personal injury.
2007-04-18 10:27:19 · 4 answers · asked by smatts 1 in Business & Finance ➔ Taxes ➔ United States
If you were awarded money in a personal injury suit, you did not 'earn' that money. The short answer is, it depends on what the money is for. Compensation for your injury is not taxable income. Compensation for lost wages is taxable. Punitive damages are taxable income.
2007-04-18 11:50:14 · answer #1 · answered by STEVEN F 7 · 0⤊ 2⤋
If the settlement is for physical injury or illness, it is not taxable. If any portion was for interest, lost wages, or punitive damages that portion is fully taxable as ordinary income.
If the settlement was for anything but physical injury or illness it's generally taxable as ordinary income. However, any settlement for damages that simply makes you "whole" again is not taxable. For example, if you sued your insurance company to force them to pay a claim for damage to your home that they should have paid in the first place and use the proceeds to repair your home the settlement is not taxable to the extent that you use it to repair you home. Anything above and beyond your loss would be taxable as ordinary income.
2007-04-18 19:42:38 · answer #2 · answered by Bostonian In MO 7 · 3⤊ 0⤋
Settlements from personal injury are generally non taxable. However, there are always exceptions. Take a look at this IRS document and consider the situation that best fit yours http://www.irs.gov/pub/irs-pdf/p4345.pdf
Best wishes.
2007-04-18 17:42:59 · answer #3 · answered by JQT 6 · 0⤊ 0⤋
Yes. I'm not a tax expert, and I'm sure every state has different state tax laws, but in my experience you are taxed on EVERYTHING. Winning a game of poker, or a game show prize, tips, unemployment, child support, etc.
2007-04-18 17:37:11 · answer #4 · answered by Michelle M 2 · 0⤊ 3⤋