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rsacid · Dec 16, 2011, 08:04 AM

Hello, I received a mediated settlement of $46000.00. The claim was non-specific physical damages. Stress from the incident and damage to reputation. How much will I have to pay in taxes on that amount and is there any way I can divert some of that to lessen the amount I have to pay in taxes.

ebaines · Dec 16, 2011, 08:24 AM

This is fully taxable as ordinary income. Awards for damage to property (is that what you meant by "physical damage?"), stress, and damage to reputation are taxable. The only settlements that are not taxable are those specifically for physical injury or sickness, including compensatory damages. Stress ("emotional distress") is not considered sickness and so is taxable, although awards for medical care expenses related to distress is tax free.

Attorney's fees can be deducted using the percentage of the award that's taxable - for example if 70% of the award is taxable you can deduct 70% of the attorney's fees.

rsacid · Dec 16, 2011, 08:36 AM

It was a combined settlement, damage to reputation and stress causing physical damages, high blood pressure. But I think the award stated non-physical damages. What would I be looking at for taxes, it was 81k, the attorney took her cut directly from the insurance carrier. I never saw the money and don't know if it is even on the 1099. I received 46K plus other additiional payments which came directly from payroll, so it has been taxed already.

ebaines · Dec 16, 2011, 08:58 AM

You should receive a 1099 that shows $81K as income. You report that full amount as income, and then deduct the attorney fees as a miscellaneous deduction on schedule A. Be sure to get a written statement from your attorney that shows how much you had to pay out of the $81K settlement. Amounts you received from payroll will should be reported on your W2, along with witholding tax already paid, so no special tax reporting is needed.

JudyKayTee · Dec 16, 2011, 11:55 AM

Originally Posted by rsacid

Hello, I received a mediated settlement of $46000.00. The claim was non-specific physical damages. Stress from the incident and damage to reputation. How much will I have to pay in taxes on that amount and is there any way I can divert some of that to lessen the amount I have to pay in taxes.

This sounds like personal injury, a settlement for stress and damage to your reputation. It's non taxable.

Reimbursement IS taxable.

ebaines · Dec 16, 2011, 12:20 PM

It all depends what the OP means by the term "physical damages." I thought he meant that some property of his was damaged, and he was stressed by that event; in this case the award is taxable. But if he means that he was injured, and the resulting stress was due to this injury, then is is not taxable. And as noted any award to pay for medical expenses (for the high blood pressure perhaps) are also tax free.

rsacid - if you could please specify what the nature of the "physical damages" were, we could clarify this for you.

JudyKayTee · Dec 16, 2011, 12:40 PM

Originally Posted by ebaines

It all depends what the OP means by the term "physical damages."
I thought he meant that some property of his was damaged, and he was stressed by that event; in this case the award is taxable. But if he means that he was injured, and the resulting stress was due to this injury, then is is not taxable. And as noted any award to pay for medical expenses (for the high blood pressure perhaps) are also tax free.

rsacid - if you could please specify what the nature of the "physical damages" were, we could clarify this for you.

It's in his other thread (somewhere) - he was fired without cause and slandered, causing stress and loss of reputation. No property damage (that I can see).

Sorry - I should have posted this info earlier.

MukatA · Dec 16, 2011, 06:38 PM

From IRS publication 4345: Interest, punitive damages, emotional distress or mental anguish, and employment discrimination or injury to reputation settlements are generally taxable.

JudyKayTee · Dec 17, 2011, 12:23 PM

Originally Posted by MukatA

From IRS publication 4345: Interest, punitive damages, emotional distress or mental anguish, and employment discrimination or injury to reputation settlements are generally taxable.

Is this something new? I work for liability/personal injury Attorneys. The pre-printed settlement agreements state that the personal injury part of the settlement (including emotional distress and mental anguish) are NOT taxable. I will be sending that site out later today for them to review.

I am shocked - and apologize for my apparently very incorrect answer!