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YourTaxDefender
YourTaxDefender, Enrolled Agent
Category: Tax
Satisfied Customers: 9
Experience:  I am an Enrolled Agent licensed to practice before the IRS; specialized in Tax resolutions.
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I will be receiving a settlement nest year due to a wrongful

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I will be receiving a settlement nest year due to a wrongful death suit. Is any or all of it taxable income. I am not sure how it will be divided, between pain and suffering and punitive. I won't know the amount until the trail is over. I just need a heads up.
Welcome. Thank you for choosing us to assist you. My name is XXXXX XXXXX my goal is to help make your life, a little... less taxing.

As you do not know how the settlement will be divided, the following IRS document should shed a bit of light on the subject matter for you.

http://www.irs.gov/pub/irs-pdf/p4345.pdf

Please let me know if I can be of further assistance to you regarding this matter.

Thank you again for choosing this Q&A service to assist you.
Customer: replied 3 years ago.

I found that information on my own. What I wanted a a more understandable answer!

Hello and thanks for trusting me to help you today
According to the IRS, any lawsuit settlement proceeds that a court awards for physical illness or injury are non-taxable. This includes wrongful death settlements, since the damages are imposed due to a court’s finding that a third party is responsible for the physical illness or injury that resulted in death.

To qualify for this exception, the settlement must be compensatory, meaning that it must be a form of compensation for the pain and suffering caused in the case.

Compensatory proceeds are non-taxable, but if there are any additional proceeds that are awarded such as punitive damages, payments for emotional distress, or awards for lost wages, those payments are considered income and are subject to income tax.

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YourTaxDefender, Enrolled Agent
Category: Tax
Satisfied Customers: 9
Experience: I am an Enrolled Agent licensed to practice before the IRS; specialized in Tax resolutions.
YourTaxDefender and 2 other Tax Specialists are ready to help you
I hope my answer assisted you in understanding the difference and tax liability.
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