malpractice settlement taxable?
If someone gets a settlement from a malpractice
lawsuit because their parent died, does this have to be claimed
as income when doing taxes?
Amounts other than punitive damages received on account of personal
injury or wrongful death are income tax-free to the recipient, including
that person's estate or heirs. Wrongful death settlements or awards
are also not included in the decedent's estate for estate-tax purposes.
Publication 4345 provides the following guidance on additional portions
of awards and settlements:
Interest, punitive damages, emotional distress or mental anguish,
and employment discrimination or injury to reputation settlements
are generally taxable.
- Interest: Amounts on any settlement are taxable as "Interest
Income" and should be reported on line 8a of Form 1040.
- Punitive Damages: Amounts are taxable and should be
reported as "Other Income" on line 21 of Form 1040.
It does not matter if punitive damages are related to a physical
injury or physical sickness.
- Emotional distress or mental anguish: Amounts are taxable
to the extent that it exceeds medical costs, not previously deducted,
for treatment of emotional distress or mental anguish. A statement
showing the entire settlement amount less related medical cost
should be attached to the return. The net taxable amount should
be reported as "Other Income" on line 21 of Form 1040.