Received personal injury settlement - do i have to file?

[tensfind]

What is the name of your state (only U.S. law)? New York

I'm asking this on behalf of someone.

The person normally does not file taxes since they only receive a small SSDI payment (below 9k) since suffering an accident and that is their only income.

The person was recently awarded a moderately large settlement as the result of a personal injury lawsuit.
Lawyers say it is totally tax-free.

My question is, must the person file a tax return as a result of the settlement and list it there or is it okay to not file as previously?

Thanks.

 

[LdiJ]

What is the name of your state (only U.S. law)? New York

I'm asking this on behalf of someone.

The person normally does not file taxes since they only receive a small SSDI payment (below 9k) since suffering an accident and that is their only income.

The person was recently awarded a moderately large settlement as the result of a personal injury lawsuit.
Lawyers say it is totally tax-free.

My question is, must the person file a tax return as a result of the settlement and list it there or is it okay to not file as previously?

Thanks.

Was a 1099 issued to your friend?

 

[tensfind]

Hi. Just the SSA-1099 he normally gets for SSDI benefits which he is not required to file.
No 1099 regarding lawsuit.

 

[LdiJ]

Hi. Just the SSA-1099 he normally gets for SSDI benefits which he is not required to file.
No 1099 regarding lawsuit.

If that is the case, then it may be accurate that the settlement is not taxable or reportable. If the money came from an insurance company there is the greater likelihood that it is neither taxable or reportable.

Settlements can either be totally non-taxable, or totally taxable, or be partially taxable and partially non-taxable. It all depends on what the settlements were designed to cover.

Let me give you an example:

Lets say that someone gets a 100k settlement for a car accident.

20k covers the totaled vehicle - non taxable.

40k covers medical bills - non taxable.

20k covers future possible medical bills - non taxable

20k covers lost wages - taxable

 

[tensfind]

Yeah it came from an insurance company. I was told by the lawyers that it is totally tax free and that it was designed that way. Thanks for your assistance.

Added: After looking at if further, though he doesn't have to file, he has to decided to file it anyway.
Thanks again.