3

In my case the settlement was a result of an insurance company lawsuit alleging that the insurance company overcharged its customers on a fee to its customers (including myself).

I'm thinking that this would effectively be a (forced) reimbursement. Am I correct in assuming that this event is not likely taxable?

It doesn't make a huge difference since the amount was under $10, but I am mostly just curious.

3

No, it is not a reimbursement. Monetary awards, including punitive damages, are taxable. The only exception is when the damages are your health (physical injuries/illness). You either report them as taxable income, or reduce your basis in the property to which the award refers.

See this helpful publication from the IRS.

  • 1
    I don't see anything in the document you reference to back up this statement. Repayments for overcharging don't seem to fall into any of the categories discussed in the article, and I don't see a blanket statement that all other categories are taxable. Naively, if a court orders someone to pay back money I have paid them out of after-tax income (for example if I paid for work that they didn't do) then I don't see how that could be taxable. isn't this the same? – DJClayworth Jan 28 '16 at 18:17
  • Reparations for "injury" or "losses" should not be taxable. Did you claim a deduction for the loss that has been made good by restitution ? A forgiven debt may be taxable as imputed income. Similar case law for circumstances identical to yours should be referenced. – mckenzm Jan 29 '16 at 2:22
  • @mckenzm as I said - if property is involved then the award reduces your basis in the property. – littleadv Jan 29 '16 at 5:53
  • @DJClayworth the blanket statement is IRC Sec. 62. Class action suit rewards are usually punitive damages, not cure for specific injury. When you get a monetary award in a class action suit - you only need to show that you're part of the class, you don't need to show any damage or injury caused to you personally. As such - your example is completely irrelevant. – littleadv Jan 29 '16 at 5:54
  • This case is in fact a cure for a specific injury, i.e. an overcharge. – DJClayworth Jan 29 '16 at 12:48

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.