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accident claim taxed as income?

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What is the name of your state? arizona

I was involved in an auto accident 15 years ago. This past year I received a large sum of money due to a class action suit which I was involved in because of this accident. I received a 1099.

I have been told by some people I wouldn't have to pay taxes on this money (mostly accountants), however, I've been told by others involved in the suit that I would be taxed on this money as if it were income.

Do I pay taxes on this money or not? (the suit was against the insurance company I was covered by at the time of the accident.)



The answer is a little complex:

Court awards and damages. To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces.

Include the following as ordinary income.

1) Interest on any award.
2) Compensation for lost wages or lost profits in most cases.
3) Punitive damages. It does not matter if they relate to a physical injury or physical sickness.
4) Amounts received in settlement of pension rights (if you did not contribute to the plan).
5) Damages for:
a) Patent or copyright infringement,
b) Breach of contract, or
c) Interference with business operations.
6) Back pay and damages for emotional distress received to satisfy a claim under Title VII of the Civil Rights Act of 1964.

Do not include in your income compensatory damages for personal physical injury or physical sickness (whether received in a lump sum or installments).

Emotional distress. Damages you receive for emotional distress due to a physical injury or sickness are treated as received for the physical injury or sickness. Do not include them in your income. If the emotional distress is due to a personal injury that is unrelated to a physical injury or sickness (for example, employment discrimination or injury to reputation), you must include the damages in your income, except for any damages you receive for medical care due to that emotional distress. Emotional distress includes physical symptoms that result from emotional distress, such as headaches, insomnia, and stomach disorders.

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