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March 26, 2022
Question

I Received a settlement for a complaint filed with the US Department of Education

  • March 26, 2022
  • 1 reply
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I received a settlement for a university, for denied ADA accommodations. These were reimbursement for expenses that I incurred because of wrongful denial of reasonable accommodations. I received a 1099-Misc, should this be taxable?

1 reply

DawnC
Employee
March 26, 2022

It depends on how the court classified the payment.   Amounts received for previously deducted expenses are taxable.    

 

Generally, all settlements are taxable unless specified by the tax code.   For damages, the two most common exceptions are amounts paid for certain discrimination claims and amounts paid on account of physical injury

 

Awards and settlements can be divided into two distinct groups to determine whether the payments are taxable or non-taxable. The first group includes claims relating to physical injuries, and the second group is for claims relating to non-physical injuries.   Within these two groups, the claims usually fall into three categories:

 

  1. Actual damages resulting from physical or non-physical injury;
  2. Emotional distress damages arising from the actual physical or non-physical injury; and
  3. Punitive damages - Punitive damages are not excludable from gross income

 

If the income is not excludable from income, it is taxable on Form 1040.   Legal settlements that are taxable (including previously-deducted medical expenses related to physical injury or illness) are entered as miscellaneous (other) income.

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