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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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what percentage does the irs take of a lawsuit settlement

Customer Question

If I win a large amount of money in a lawsuit, what percentage does the IRS take out for taxes?
Submitted: 10 years ago.
Category: Tax
Expert:  Ed Johnson replied 10 years ago.

Dear Nikduffery,

A lawsuit settlement is not reportable income if it is for personal injury or discrimination.

However any portion of the settlement designated for attorney fees, court costs, replacement of lost wages, or punative damages would be withheld at 25%. When you file your taxes you would be taxed based on your Adjusted Gross Income and any overwithholdilng would be refunded to you.