When is a settlement considered taxable income?

In Pennsylvania, any money recovered in a settlement stemming from an accident lawsuit is generally considered taxable income. Generally speaking, any money that a person receives as a result of a legal action is considered taxable income. This is true regardless of the type of legal action, including accident law. When determining taxable income, the Internal Revenue Service (IRS) looks to the source of the payment. If a settlement payment was received as a result of lost wages, it is considered taxable income in the same manner as wages from work. Additionally, if the payment was received as a result of physical injuries (or physical sickness) it is considered taxable income. In certain cases, this may be counter intuitive since the money is being used to replace lost wages due to injuries and is not designed to make a person wealthier in the eyes of the IRS. However, the IRS still requires that it is reported as taxable income regardless. When filing taxes, it is important to be sure to include any money recovered from a settlement in Pennsylvania, as it will be subject to taxation. Furthermore, it is important to keep records of any settlement as part of the tax return preparation process. This information can be used to determine the exact amount of taxable income from the settlement.

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When is a settlement considered taxable income?

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