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I recently received a settlement from an insurance company

Customer Question
for injuries received in a...
I recently received a settlement from an insurance company for injuries received in a motor vehicle accident. Is this money considered income for tax purposes
Submitted: 7 years ago.Category: Tax
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10/2/2010
Tax Professional: Richard, Tax Attorney replied 7 years ago
Richard
Richard, Tax Attorney
Category: Tax
Satisfied Customers: 56,016
Experience: 29 years of experience as a tax, real estate, and business attorney.
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Good morning. No, this will not be considered income. Here is the summary of why:

 

The income tax law of the United States has a broad general rule in the notorious Section 61: gross income includes all income.

§ 61. Gross income defined.

(a) General definition. Except as otherwise provided in this subtitle, gross income means all income from whatever source derived. " 26 United States Code [Internal Revenue Code]. § 61

However, an electrical accident claim will generally be a personal injury claim. The good news is that personal injury claims are specifically excluded from federal income tax:

§ 104. Compensation for injuries or sickness.

(a) In general. Except [for] deductions allowed for any prior taxable year, gross income does not include-

(1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness;

(2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries

 

 

I hope this has given you the guidance you were seeking. I wish you the best of luck!

 

If you have a follow-up question, please remember that there might be a delay between your follow up questions and my answers because I may be helping other clients or taking a break.

 

If I have adequately answered your question, even though the answer might not have been the one for which you hoped, I would appreciate it if you would please click the GREEN ACCEPT button so that I receive credit for my work; otherwise, though you have made a deposit, I do not receive credit.

 

If you need additional clarification on this question after clicking ACCEPT, please do not hesitate to click Reply and I will be happy to do what I can to help you further. Thanks for allowing me to be of service to you.

 

The information given here is not legal advice. As all states have different intricacies in their laws, the information given is general only. This communication does not establish an attorney-client relationship with you. I hope this answer has been helpful to you.

Richard
Richard, Tax Attorney
Category: Tax
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