Do I have to pay taxes for money earned from a legal settlement?

If one is awarded money as a result of a legal settlement, do I need to pay federal (and/or state taxes) on the money earned from such a settlement? The settlement was a result of a grievance filed for employment discrimination and wrongful termination.

Asked By: The "L" Word - 2/5/2007
Best Answer - Chosen by Asker
Yes it is taxable and reportable, but you may be able to take a reduction on you adjusted gross income for legal fees paid for a discrimination suit... More
Answered By: Rob - 2/6/2007
Additional Answers (2)
Settlements are considered income, so yes, unless it's personal injury. More info:,,id%3D7050,00.html#Chap2
Answered By: tonalc1 - 2/5/2007
Maybe. If the settlement is for an injury or illness, it's tax free. Any portion attributable to lost wages, punitive damages, or accrued interest is fully taxable. If the settlement is for something other than an injury or illness, it's fully taxable in most cases.
Answered By: bostonianinmo - 2/5/2007
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