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 Posted: Tue Aug 25, 2009 6:08 am Post subject: Is insurance settlement a form of taxable income? |
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Can an insurance settlement be termed as 'taxable income'?
A pretty small insurance settlement amount has been negotiated (between the carrier and the attorney) after my wife had been through an auto accident. But as per the IRS the settlement amount has been reported by our attorney as non-employee compensation. IRS
presses tax that we may owe against it.
I'd always believed insurance settlements to be non-taxable income. But now, I've to come to terms with the IRS.
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dogmate77
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| Posted: Tue Aug 25, 2009 12:05 pm Post subject: |
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| Quote: | But as per the IRS the settlement amount has been reported by our attorney as non-employee compensation. IRS
presses tax that we may owe against it.
I'd always believed insurance settlements to be non-taxable income. But now, I've to come to terms with the IRS. |
I have NEVER heard of this (in well over 20 years in the biz)....Was this a state or fed. income tax notice?
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Lori
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| Posted: Wed Aug 26, 2009 10:30 am Post subject: |
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Anything that covers for the pain-n-suffering would be taxable as it's not tangible. On the other hand, the compensation for medical costs and vehicle damages wouldn't be taxable. It is this compensation which is making up for the loss.
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anonymous00
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| Posted: Thu Aug 27, 2009 8:51 am Post subject: |
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Hi,
A part of the insurance settlement which is paid towards your car repairs or is refunded on your auto insurance deductible, wouldn't be considered as 'income'.
It is considered as a return of capital towards making your position 'at par' with what it was before the accident.
Steven |
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steven
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| Posted: Fri Aug 28, 2009 11:47 am Post subject: |
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The part of your settlement that underlines "personal injury" wouldn't be considered as income too. Only the punitive damages that come under the personal injury settlement.
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anonymous00
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| Posted: Sat Aug 29, 2009 9:32 am Post subject: |
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| Quote: | | But as per the IRS the settlement amount has been reported by our attorney as non-employee compensation. |
Then this amount must have been deducted upon his taxes in the form of compensation expense. It his his mistake, he has to rectify it now and you don't need to pay a single penny for this. You may consider filing your complaint with the state bar assoc.
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Pinkfloydfan
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