We are so sorry to hear about the accident. That’s heartbreaking. No, because the lawsuit is due to a physical injury or wrongful death, any settlement you receive is tax-free. If you haven’t already received the settlement, we’d be happy to walk you through some of your financial planning options that are unique to legal settlements. Feel free to reach out if you’d like to discuss your situation and options.

When a legal settlement includes multiple components, each part of the settlement is typically taxed according to its specific nature. The tax treatment depends on how the settlement is allocated among the different claims or subsets. When a settlement includes multiple claims, it is critical to allocate the amounts clearly and accurately in the settlement agreement. The IRS is more likely to respect the allocation if it is agreed upon and properly documented between the parties. If no allocation is made, the IRS may step in and allocate the amounts, often in a way that results in the highest taxable outcome.

Workers compensation settlements are generally not taxable because the underlying reason for the claim is a personal physical injury. Section 104(a)(2) of the Internal Revenue Code states that settlements for personal physical injuries are tax-free. So, assuming there was a personal injury involved, you should not owe any taxes on the settlement.

If the settlement compensates you for property damage (such as damage to your home, broken windows, etc.), the settlement is typically not taxable. These amounts are considered a return of capital, which means you are being reimbursed for the value of the property lost or damaged, not receiving income​​. The settlement amount you receive will adjust your "basis" or cost in your home. For example, if you purchased a home for $200,000, and you received a $50,000 settlement to fix your home, you would not have to pay taxes on the amount received. The $50,000 would adjust your basis in the property, so that when you go to sell your home, instead of your "basis" in the property being $200,000, it would be $250,000. This means that when you sold your home, you would only have to pay taxes on the difference between the sale price and the $250,000 (minus a home equity tax exclusion of $250k or $500k based on your filing status, but that's beyond the scope of this conversation). So, in short: Property Damage: Compensation for property damage to your home should be non-taxable. Reimbursement of Specific Costs: Payments for specific restoration costs, such as the electrical system repair, are also likely non-taxable. Insurance Reimbursements: Payments from your homeowners insurance for lost food are not taxable. Congrats on beating cancer!

🙏🥰🙏

Even if the government is the defendant in a lawsuit and ultimately pays you a settlement, the settlement could still be taxable. Just because the government is paying the settlement does not change the taxation of the settlement. All of the other principles and rules outlined in this video would still apply to determine if it’s taxable.

That’s correct! A car accident is considered a personal physical injury, and Section 104(a)(2) of the tax code states that settlements for personal physical injuries are tax-free.

You won’t have to pay any taxes on a Camp Lejeune settlement because the settlement is for a personal physical injury. Settlements that are received for a personal physical injury are tax-free. So, that’s good news!

No, age doesn’t impact the taxation of legal settlements in any way.

We certainly understand your sentiment and agree that the way the IRS treats punitive damages seems unfair. But that is the IRS policy. And yes, large settlements are often appealed by defendants, and the process can drag out for many years, sadly.

The life insurance companies that offer structured settlement annuities include MetLife, USAA, Berkshire Hathaway, Pacific Life, New York Life, Mutual of Omaha, and Independent Life. However, it’s important to note that structured settlement annuities are a unique type of annuity and are only available through brokers approved with a handful of appointed agencies (unlike most annuities you hear about). We’re happy to help you explore if a structured settlement annuity might make sense in your situation.

Very cool. Which one of these annuities/ carriers are designed to facilitate the sale of real estate? And do the payments work like a traditional annuity where we can get an income stream for life?

@johnwebb7163 If you are interested in using a structured settlement annuity for the sale of real estate or a business, only two life insurance companies offer that particular type of structured settlement annuity called a “Structured Installment Sale” - MetLife and Independent Life. MetLife requires the payment stream to start within one year of the sale, and the payments must all be substantially equal, with a maximum payout period of 40 years, and don’t allow for lifetime payments. Independent Life is much more flexible, and you can set up the payment stream however you want, including lifetime payments, payments that start in the future (like at retirement), future lump sum payments, etc. Independent Life also has a Structured Installment Sale option that is tied to a market index. It allows for the annuity payments to grow (currently at a participation rate of over 100%) when markets go up, but if markets go down, payments do not go down at all. So, you get unlimited upside and no risk of downside. It’s a great option for many people who have a long time horizon and want to benefit from market growth while avoiding any negative effects of market downturns. Feel free to book a free call with us if you’re interested in seeing what these options might look like in your situation. You can schedule a 15-minute call at go.oncehub.com/Amicus-15Minutes

@@AmicusPlanners This is amazing information and I can't believe there are only 2 annuity companies offering a product for Real Estate transactions. I will set an appointment with you to chat. Thank you for such a good response in chat.

@@jdubb1987 You're welcome! And we agree with you that it's surprising only two of the annuity companies offer a structured installment sale option. We look forward to speaking with you soon!

Whether or not a boy scout lawsuit settlement is taxable is a fact-dependent determination. Without knowing the details of the case, we can't give you much guidance. Please send us an email at [email protected], and we can send you an article about these types of cases that may be helpful.

You can email us at [email protected], and we’re happy to send you a copy. We’re glad you found it helpful!

If you have any questions, please let us know!

That’s great news! Not every settlement is treated the same way. It depends on the type of lawsuit or legal claim.

It depends on the type of lawsuit you are receiving a settlement for. If it’s for a personal physical injury, the lawsuit settlement is generally not taxed. But if it’s for nearly any other type of settlement, it is likely taxable.

If some of the settlement was for lost wages, that portion should be paid to you via a W-2, so you would report that portion of the settlement just like any other W-2 income. The taxation on the remaining portion of the settlement depends on underlying cause for the lawsuit. I’m not sure what you mean by “wrongful identity.” Can you elaborate? If the basis of the employment lawsuit was (1) discrimination based on you being a member of a protected class (age, gender, race, etc.), OR if the lawsuit is a (2) whistleblower or (3) civil rights claim, then you would be able to deduct your legal fees. There are a few other very limited exceptions as well. If your lawsuit doesn’t fall into any of those categories, it’s likely you’ll have to pay taxes on the full amount because the Tax Cuts and Jobs Act eliminated the miscellaneous itemized deduction from personal tax returns. I’d recommend speaking with your CPA. Reviewing your lawsuit’s documents would be the only way for your CPA to determine for certain if you can deduct your attorney’s fees or not.

@@AmicusPlanners Thanks for the reply and yes - a background company ID'd me as someone else, and therefor I was unable to use my work platform for a period of time. Part of my claim was emotional stress as I had to go to the court house and prove they had the wrong person, with the same name, and part was the loss of wages for the time I wasnt able to get on the platform.

@@AmicusPlanners The W2 I recieved from the company that was sued was for the full amount paid to the lawfirm, not the portion I recieved.

Ok. I’d recommend reaching out to your attorney and asking them for clarification on why the full amount was paid via W-2. The settlement agreement may or may not allocate amounts or percentages to the different claims you raised - which may help in determining if you can or cannot deduct legal fees. Good luck!

@@AmicusPlanners Thank you I sent them an e mail - ill follow up with you if thats ok

We would have to review the settlement documents, but based on our understanding of the Camp Lejeune settlements, it’s likely related to personal physical injuries. If that’s the case, everything you receive would be tax-free. Again - without reviewing settlement documents, we cannot confirm that. I hope that helps!

​@AmicusPlanners it's a birth defect it's the governments fault that's why I refuse to pay any taxes

@AmicusPlanners it's for a birth defect thanks to the government

Thank you. Please let us know if you have any questions or if we can help in any way.

You probably won’t have much of a problem with the tax impact of $78. 😅

Let us know if you have any questions we can answer for you!

Our expertise is in how legal settlements (lawsuits) are taxed. However, here is what studentaid.gov says: "According to the IRS, student loan amounts forgiven under PSLF are not considered income for tax purposes." studentaid.gov/help-center/answers/topic/repaying_loans/article/loan-amounts-forgiven-under-pslf-taxable

Yes - the attorneys have to report their legal fee as income on their tax return. That’s why we call the tax problem the “Plaintiff Double Tax” - because the legal fees are effectively taxed twice: once to the attorney (as it should be), and once to the plaintiff (an unfair tax result caused by the Tax Cuts and Jobs Act.) If you have more questions, please let us know or feel free to book a free, 15-minute phone call with our team.

If a child passed away due to a personal physical injury, then the settlement proceeds would not be taxable. This is due to the exception to taxation found in section 104(a)(2) of the Internal Revenue Code. You may still want to do explore if a structured settlement annuity makes sense in your situation. The tax benefit of a structured settlement annuity is that the investment growth of the annuity is also tax free. Please note that a structured settlement annuity must be set up before the case settles. Once the funds are received by the plaintiff, a structured settlement annuity is no longer an option. If you have more questions, please let us know!

We are involved in the baby formula mass tort litigation that is starting to move forward quickly, trials are scheduled for early 2024, we are now looking into how to structure our potential settlement. Not sure if this is too early to be considering this. Thanks

@johnbeaty4090 We are very familiar with the NEC litigation. You probably don’t need to do any planning at this point, but it’s a good thing to start thinking about. We are happy to be a resource to help you explore your options as the case gets closer to settlement. (This is a free service we provide for individuals nationwide.)

Thanks! I will keep you keep mind.

🎉😢😢😢😮😂​@@AmicusPlanners

The U.S. tax system is based on the principle of self-assessment. Therefore, it is the individual's responsibility to understand the tax requirements and report taxable income. So, yes, it's your legal responsibility to accurately report income, including income received from legal settlements. While some individuals may not report their settlements and haven't faced immediate penalties, this does *not* mean what they did was compliant with tax laws. The IRS can audit taxpayers several years after the filing date, and if they find unreported income, penalties and interest can be substantial. It's always safer to discuss your specific situation with a tax professional to ensure compliance and avoid potential legal and financial consequences. In short - if you don't report legal settlements accurately, you're playing the "IRS Audit Lottery." It's much better to do tax planning in advance and comply with the IRS' rules.12

1:52

You're welcome!

We're glad your mother was able to take advantage of this valuable planning tool!