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RD, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 8784
Experience:  CPA, MBA, Over 10 yrs of experience in tax planning and business consulting..
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i received a civil judgement in a law suit,, is the ...

Customer Question

i received a civil judgement in a law suit,, is the money i received to be considered taxable income.Some of the money is statutory interest on top of the judgement ,, is the entire amount i received tax free or do i have to declare some or all of it as taxable income
Submitted: 10 years ago.
Category: Tax
Expert:  RD replied 10 years ago.

The general rule is that lawsuit settlements are taxable if they replace taxable income. Taxable settlements/awards will be for:
lost wages
non-physical injuries (discrimination)
interest on the judgment
insurance reimbursements for medical expeses deducted in previous years to the extent of tax benefit
punitive damages

Non-taxable settlements/awards will include:
compensatory damages if the plaintiff has an actual physical injury
property damage (limited by basis)
warranty claims
unlimited emotional distress IF there is a physical injury [if no physical injury, tax-free award is limited to actual medical expenses for treating the emotional distress]
victim reparations
disaster relief payments

So your civil judgement award will be taxable(depending on the nature of income it was related to). Interest included is also taxable as interest income.

Here is a link to publication 4345 for your reference

Let me know if you have any question. Bonus and Feedback will be highly appreciated!!!


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.