Thank you for the explanation. The tax consequences of payments received under the National Mortgage settlement (NMS) depend on the unique facts and circumstances of each individual
borrower. You can review the Ruling at the following link;
Based on the following information, the lump sum payment has to be included in gross income
. SEE BELOW:
The following information is based on general guidance from the IRS regarding compensation
for SCRA foreclosure violations. This information will also be provided on the check stubs attached to the payments. Note that these payments may include one or more of the following components: a lump sum payment, lost equity, and interest
on lost equity.
Lump Sum Portion of Settlement Payment. Generally, you must include the lump sum payment in gross income. In limited circumstances, however, you may be able to exclude part or all of the lump sum payment from gross income. For example, you may qualify to exclude part or all of the payment from gross income if you can show that the servicer made the payment to reimburse specific nondeductible expenses (such as living expenses) that you incurred because of the SCRA violation. It is likely that you must include most or all of the lump sum payment in your income.
Lost Equity Portion of Settlement Payment. If you lost your main home in foreclosure, you should treat the lost equity payment as an additional amount you received on the foreclosure of the home. You will have a gain on the foreclosure only if the sum of the lost equity payment and the value of the main home at foreclosure is more than what you paid for the home. In many cases, this gain may be excluded from income.
While there is no way to know how much they plan to withhold in taxes from the settlement, my guess would be 28% because that is the tax bracket that amount falls under.
Let me know if you require further assistance with this matter.