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.


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? 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. Jan 29 '16 at 12:48

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