How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask Robin D. Your Own Question
Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 15185
Experience:  15years with H & R Block. Divisional leader, Instructor
Type Your Tax Question Here...
Robin D. is online now
A new question is answered every 9 seconds

On the Lona Buck v. Allstate (American Heritage Life Insurance

This answer was rated:

On the Lona Buck v. Allstate (American Heritage Life Insurance Co.) I was issued $6,000 class action future op out of the cancer policy. I took the $6,000. Now I have a 1099 with the $6,000 called income.

My tax person quesstions if I have to pay tax on the 'income'. Please advise.

Ron A

Robin D :

Hello and thank you for using Just Answer,

Lawsuits against insurance companies, finance companies, etc., for negligence, fraud, breach of contract, etc., can include a variety of claims, and therefore can produce a variety of types of awards/settlements.

Because these are nonphysical injuries, under IRC § 104(a)(2), only compensation for out-of-pocket amounts for medical costs incurred to treat any emotional distress claims would be excludable from income if not previously deducted (IRC §§ 111 and 213). All punitive damages received pursuant to these types of claims are taxable.
Your tax preparer would want to look to the reason for the lawsuit and then if you paid any medical costs due to mental distress. Only the medical could be excluded unless you used that amount already as a deduction on your Schedule A.


Robin D :

It is unfortunate but lawsuits and awards are sometimes taxable.

Robin D. and other Tax Specialists are ready to help you