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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 16559
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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My attorney is suing 3 entities on my behalf....one of the

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My attorney is suing 3 entities on my behalf....one of the entities is settling with me for $2500 and after attorney fees I receive approximately $1300. The form I am being asked to sign for this money is a Mutual Release form to release one the entities from liability (there are no payroll monies involved in this settlement). Should I receive a 1099 and do I have to pay taxes on this settlement money?

MyVirtualCPA :

Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.

MyVirtualCPA :

What is the nature of the claim? Whether or not you are taxed depends on the reason for the settlement.

Customer:

It's a discrimination lawsuit that cost me future employment, but the entity that settled was not the employer

MyVirtualCPA :

You will have to find out from your attorney how the settlement is characterized.

MyVirtualCPA :

If it's for losses you incurred, then the settlement would not be taxable.

MyVirtualCPA :

but if it's for payroll then it is

MyVirtualCPA :

Pain and suffering settlements are not taxable

Customer:

it's considered mutual consideration

Customer:

that told me I needed to check with a tax professional

Customer:

so I am checking with you

MyVirtualCPA :

Yes, I would say it's taxable. Physical injury settlements are not taxable, and loss of value settlements are not taxable. It does not sound like it's either of this

MyVirtualCPA :

You can read the IRS publication outlining tax treatment of settlements here:

MyVirtualCPA :

http://www.irs.gov/pub/irs-pdf/p4345.pdf

Customer:

so I should be getting a 1099 from them?

MyVirtualCPA :

Yes, since the amount is greater than $600

MyVirtualCPA :

If you don't get a 1099 you should still claim it

Customer:

will I get a 1099 for the totally of $2500 or just the portion I received from my attorney?

MyVirtualCPA :

The full $2500 and you can deduct the legal fees if you itemize your deductions

Customer:

by what date are they required to mail the 1099 to me, so I know when to file my taxes?

MyVirtualCPA :

They should have it to you by January 31, but even if you don't get it you should still include the income on your taxes

MyVirtualCPA :

Is there anything else I can assist you with today?

Customer:

ok thanks

MyVirtualCPA :

if not, please rate as "excellent" so that I may receive credit for assisting today

Megan C and other Tax Specialists are ready to help you