Are Lawsuit Settlements or Judgments Taxable?

Full Video Transcript

TRANSCRIPT: Upon completion of a lawsuit, you may receive a lawsuit settlement. It is important for you to know if you will have to pay taxes on that money. According to the IRS, any income received is taxable unless it falls within an exception. One of these exceptions is if you receive a settlement to compensate you for injuries and sickness. The money you receive for this can be thought of as simply putting you back in the position as if the injury or sickness had never happened, so it’s not really income. However, if you receive punitive damages, which are damages beyond those needed to make you whole, you probably have to pay taxes on that money. Each settlement or judgment may include a combination of both taxable and non-taxable money. Your attorney or your tax specialist will be able to help you determine what needs to be reported.

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