Have a Tax Question? Ask a Tax Expert
Before an accurate answer can be supplied, you will need toprovide additional information.
What was the nature of the lawsuit? What damage was suffered that was compensated? What were the punitive damages for?
Please supply the above information so we can provide an accurate answer.
If the payment is an "inconvenience payment," meaning that you are being paid because a person or situation inconvenienced you, the money IS taxable.
If the money is to reimburse you for damages, services rendered or other items that you paid out of pocket for which you are being reimbursed, the money is NOT taxable.
Let me know if you still don't understand or if you still have questions.
What I really want to know is:
1. What are you being compensated for? an injury? a disease? bad advice? What happened that led to the lawsuit?
2. What was the basis forpunitive damages being added?