Physical injuries or physical sickness settlements are generally non-taxable.
Did you claim medical expense deduction on Sch A in the year you incurred the expense?
If the settlement received for personal injury is not taxable than attorney fees paid and medical expenses paid back to health insurance Co is not deductible.
You can elect to report the interest income earned by your son on your tax return and pay tax on your tax return.
Let me know if you have any question.
Please note: This advice is provided with the understanding that all the relevant facts have been provided by you. Any change in facts might affect the advice given and hence may not be relied on in such cases. Nothing contained in this reply was intended or written to be used, can be used by any taxpayer, or may be relied upon or used by any taxpayer for the purposes of avoiding penalties that may be imposed on the taxpayer under the Internal Revenue Code of 1986, as amended.
I'm sorry, I am still some what confused. The accident was in 2008, I received the settlement in 2009. I did not itemize any medical expenses in 2008, as I was told I did not meet the % needed to make a difference at tax time. I have paid out more money in medical bills this year, including the money paid back to insurance company. If I itemize my medical this year, what is the impact? So, if i read your response correctly, I can not take the money I paid, due to subrogation, as a tax deduction.
My second question, I did review on IRS site, and from a "test", it looked as though my son didn't need to report the interest income, and I wasn't allowed. Is that correct? Thank you.
If you claim the medical expenses incurred as deductible than you will include the amount you received as settlement for personal injury as taxable income.
Regarding- interest income of your son-
since he is 17 years old- you can elect to include his income on your tax return,
Link for your reference