Today TaxMama hears from James in Texas, who tells us, “My father died from lung cancer from working in chemical plants. I am receiving out of court settlements from several of the companies he worked for, and several more to come. Is this money taxable? If so, what type of income, and what is the tax rate? The total settlement will be approximately $250,000 less my lawyer fees, which generally run about 40%.”
What an awful way to lose your father.
Clearly, such a small sum is not much compensation for losing someone you love.
However, at least on the financial score, I have good news for you.
Since the settlement is based on a physical illness, none of that money will be taxable.
Unless the companies issue your family a 1099 form, you won’t even have to report it.
If they do issue the 1099, be sure to include the income on your tax return, then deduct it back out. Remember to include a page with the tax return explaining that the money was for a tax-free settlement based on a physical harm to your father.
And remember, you can find answers to all kinds of questions about legal settlements and all kinds of other tax issues, free. Where? Where else? At TaxMama.com[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips. Please click on the subscribe link and join us.]
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