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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13344
Experience:  15years with H & R Block. Divisional leader, Instructor
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I received a restitution payment from a payday loan company

Customer Question

I received a restitution payment from a payday loan company and want to know if I have to pay taxes on the restitution payment I received. My original loan was $5000.00 and I received a restitution payment of $62,000 back. Do I have to pay taxes on the whole amount?
Submitted: 9 months ago.
Category: Tax
Expert:  Robin D. replied 9 months ago.

Hello

The part of the payment above your original loan amount would be taxable if you paid back the loan or the $5000 originally borrowed. You may claim attorney fees on Schedule A that you paid to receive this taxable income.

Generally unless the payment was for physical injury it is taxable.

Customer: replied 9 months ago.
Robin, this settlement money was a result of wrongful act. They were caught with 400% interest on the loans. I did not pay the loan off because we were instructed by the WV attorney general to stop paying on the loans because of the excess interest. Doesn't this mean that the other party (Cash Call) committed a wrongful act? Wouldn't this money be tax-free based on this?Thank you.
Paulette
Expert:  Robin D. replied 9 months ago.

Hello

Settlements are only nontaxable when the "wrongful act" causes physical injury. In physical injury settlement the award is not taxable.

This was under usury laws (where too excessive interest is charged).

Unless physically injury is involved or your were paid to reimburse you for loss of value in property, tha amount is taxable.

IRC § 104

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